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UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


A  TREATISE 


ON  THE  LAW  OF 


COLLATERAL  SECURITIES 


AS  APPLIED  TO 


NEGOTIABLE,   QUASI  -  NEGOTIABLE, 


NON- NEGOTIABLE  CHOSES  IN  ACTION. 


BT 

WM.  COLEBEOOKE, 


CHICAGO . 
CALLAGHAN  &  COMPANY. 

1883. 


Entered  according  to  Act  of  Congress,  in  the  year  1883,  by 

WILLIAM  COLEBKOOKE, 
In  the  office  of  the  Librarian  of  Congress,  at  Washington 

T 

C 


R,  R.  DOXMU.KT  6  SONS,  PRINTKRS, 

' 


PREFACE. 


The  law  and  principles  of  collateral  security,  given  for  loans 
of  money,  discounts  of  bills  of  exchange  or  promissory  notes,  and 
other  valuable  considerations,  have  become  a  recognised  branch 
of  commercial  jurisprudence.  Occasional  references  to  the  sub- 
ject are  found  in  the  text  books,  and  the  contract  of  pawn  or 
pledge,  as  applied  to  corporeal  personal  property,  is  properly 
regarded  as  a  division  of  the  law  of  bailment.  Different  and 
more  important  questions  arise,  however,  from  the  use  of  col- 
lateral securities,  the  term  itself  implying  the  existence  of  a 
principal  promise  or  obligation  of  the  borrower.  The  posi- 
tion of  the  indorsee  of  negotiable  paper,  receiving  the  same 
as  collateral  security,  as  a  holder  for  value,  in  the  usual 
course  of  business,  and  his  rights,  duties,  and  liabilities;  and 
of  the  holder  or  indorsee  of  documents  of  title,  such  as 
certificates  of  stock,  bills  of  lading,  warehouse  receipts,  and 
other  choses  in  action,  as  collateral ;  and  of  the  borrower 
depositing  such  collateral  security,  require,  for  their  proper 
consideration,  a  treatise  exclusively  devoted  thereto.  An 
endeavor  has  been  made  in  this  work,  with  more  or  less 
success,  as  the  reader  may  judge,  to  cover  the  important 
questions  indicated. 

The  natural  division  of  collateral  securities  has  been  fol- 
lowed by  an  arrangement  thereof  into  three  general  classes, 
including  first,  negotiable  instruments,  bills  of  exchange  and 
promissory  notes,  bonds  and  coupons,  notes  (and  bonds) 
and  mortgage  securities,  and  the  rights,  duties,  and  liabili- 
ties of  the  holder,  creditor,  surety,  accommodation  acceptor 


14- (o 


ii  PREFACE. 

or  indorser,  or  guarantor,  holding  collateral  securities  from 
the  principal.  The  second,  documents  of  title,  which  are, 
by  commercial  usage,  quasi-negotiable,  certificates  of  stock, 
bills  of  lading,  and  warehouse  receipts;  and  the  rights  of 
stock  and  other  brokers,  dealing  under  the  usages  of  Ex- 
changes, with  the  collateral  stocks  and  other  securities  of 
their  customer,  and  of  the  factor  as  pledger.  The  third 
class  includes  the  large  order  of  non-negotiable  choses  in 
action  and  equitable  assignments  of  funds  available  as  col- 
lateral. 

The  present  work  presents  a  complete  citation  of  cases 
(over  four  thousand  in  number)  directly  relating  to  the  law 
of  collateral  security,  and  including  the  latest  published  in 
the  American  and  English  reports. 

WM.    COLEBROOKE. 

Chicago,  Not.  15,  1888. 


CONTENTS. 


PART  I.— NEGOTIABLE  COLLATERAL  SECURITIES. 
CHAPTER    I. 

NEGOTIABLE   COLLATERAL   SECURITIES. 

General  statement  as  to  and  definitions  of  "Collateral  security,"  and 
"Collateral,"  -  ....§§  1-3 

CHAPTER    II. 

THE  ACT   OF   PLEDGE. 

The  act  of  pledge  by  indorsement  and  delivery — Indorsement  for  special 
purpose  —  Delivery  —  Possession  by  pledgee  or  by  third  person — Ex- 
change and  substitution,  •  -  •  •  -  §§  4-15 

CHAPTER    III. 

THE  PLEDGEE  A  HOLDER  FOR  VALUE. 

Upon  present  and  future  advances — And  for  antecedent  debt — The  question 
of  valuable  consideration — The  rule  as  to  antecedent  debt,  without 
further  consideration,  under  limitations,  -  -  §§  16-30 

CHAPTER    IV. 

ACCOMMODATION  PAPER  AS  COLLATERAL. 

The  favor  shown  to  its  use  as  collateral  security — Its  pledge  after  maturity 
— For  antecedent  debt  —  Under  acts  of  misappropriation  —  The 
pledgee's  recovery,  -  -  §§  31-42 

CHAPTER    V 

BONDS  AND  COUPONS  AS  COLLATERAL. 

The  use  of  such  securities  as  collateral  by  delivery  merely — The  rule  as  to 
"registered"  bonds  —  The  pledge  of  severed  coupons  —  The  use  of 
debentures  as  collateral,  •  §§  43-49 

(HI) 


iv  CONTENTS. 

CHAPTER    VI. 

THE    PARTNER'S   PLEDGE   OF   SECURITIES. 

The  partner's  authority  to  borrow  money,  and  give  collateral  security — 
The  use  of  trust  funds  —  Guaranties,  accommodation  paper,  as  col- 
lateral for  partner's  own  debt  —  Misappropriation  of  partnership 
securities  as  collateral— The  recovery  of  the  pledgee,  -  §§  50-60 

CHAPTER    VII. 
BANKS   AND   BROKERS. 

Collateral  securities,  in  relation  to  banks  and  brokers — The  enforcement 
of  mortgage  securities  by  National  Banks,  -  •  •  §§  61-64 

CHAPTER    VIII. 
MISAPPROPRIATION   IN   PLEDGE. 

The  pledgee's  rights,  under  misappropriation  of  bills  and  notes,  and  accom- 
modation paper — Under  forgery,  where  lost  or  stolen,  after  due,  or  a 
statutory  offense — In  cases  of  misappropriation  by  agents,  bankers, 
executors,  trustees,  directors  —  Rides  as  to  notice  —  Recovery  of 
pledgee,  •  -  §§  65-78 

CHAPTER    IX. 

TRANSFER   AND    SUB-PLEDGE. 

Th  pledgee's  transfer  and  sub-pledge — Estoppel,  as  applied  against  pledg- 
ers, upon  sub-pledges  for  sums  larger  than  original  advance — Sub- 
pledges  of  negotiable  and  non-negotiable  collateral  distinguished — Dis- 
charge of  the  sub  pledgee,  -  -  §§  79-84 

CHAPTER    X. 

THE   PLEDGEE'S   DUTIES. 

The  pledgee's  duties  as  to  collateral  paper — His  recovery — And  upon 
"short,"  uncollectible,  over-due  paper — His  compromise  or  surrender 
of — Application  of  to  other  debts,  and  of  interest — "  Marshalling"  secu- 
rities— The  statute  of  limitations— Production,  and  return  of  collateral 
— The  pledgee's  use  of  negotiable  bonds,  -  .  •  §§  85-103 

CHAPTER    XI. 
THE   ENFORCEMENT   OF   COLLATERAL    SECURITIES. 

The  enforcement  of  the  principal  note,  while  holding  collateral— And  of 
the  collateral  notes — Liabilities  of  parties  upon  collateral  paper — Elec- 
tion of  pledgee  as  to  enforcement— When  liable  for  loss— Concurrent 
remedies — Production  of  collateral  notes  upon  action  on  principal  note 
— Action  upon  antecedent  debt,  •  -  •  .  §S  104-116 


CONTENTS.  V 

CHAPTER    XII. 
THE    PLEDGEE'S   SALE   OF   COLLATERAL. 

The  sale  of  collateral  paper  and  long-time  bonds — The  requirements  of  a 
valid  sale — Sales  under  contract — The  purchaser's  title — The  enforce- 
ment of  mortgage  securities,  -  -  -  §§  117-124 

CHAPTER    XIIL 
THE   PLEDGOR'S   RIGHTS. 

The  pledger's  transfer  or  re-pledge  of — His  right  to  surplus,  and  to  return 
of — Remedies  upon  tortious  sales  or  sub-pledges  —  His  relief  in 
equity,  -  -  §§  125-133 

CHAPTER    XIV. 
USURY,  AS  APPLIED  TO  COLLATERAL    SECURITIES. 

The  rights  of  pledgor  and  pledgee,  upon  collateral  paper  given  upon  usu- 
rious loans — the  recovery  of  National  Banks  upon  such  collat- 
eral, -  ...  .  §§134-143 

PART  II.— NEGOTIABLE  NOTES  AND  MORTGAGES. 
CHAPTER    XV. 

THE  INDORSEE'S  TITLE  TO  THE  NOTE. 

The  indorsee's  title  to  the  note — Transfer  of  note  carrying  mortgage  secu- 
rity— The  mortgagee  as  trustee — The  question  of  record — Mistakes  in 
mortgages — Recovery  of  indorsee-1— His  concurrent  remedies — Equita- 
ble aid  to  the  maker  of  notes — Statute  of  limitations  upon  note— Ap- 
plications of  proceeds  of  mortgage  securities,  -  -  §§  143-160 

CHAPTER    XVI. 
THE  INDORSEE'S  TITLE  TO  THE  MORTGAGE  SECURITY. 

The  indorsee's  title  to,  freed  from  equities — The  rule  where  such  enforce- 
ment is  subject  to  limitations — Mortgages  securing  negotiable  bonds  and 
accommodation  paper,  under  the  rule,  free  of  equities,  -  §§  161-174 

CHAPTER  XVII. 
NOTES  AND  MORTGAGES  AS  COLLATERAL. 

The  pledgee's  title  to  the  note  and  mortgage — Pledge  of  to  National  Banks 
— The  pledgee's  and  sub-pledgee's  recovery,  sale,  and  collection  of — 
His  foreclosure  and  sale  of  the  land — The  pledger's  re-transfer 
of,  ,  -  - §§  175-183 


ri  CONTENTS. 

CHAPTER    XVIII. 

ASSIGNMENTS  OF  BONDS  AND  MORTGAGES. 

The  equities  to  which  the  assignee  is  subject — Equitable  estoppel,  as  applied 
to  such  collateral  securities— The  certificate  of  "  no  defense  " — Under 
indorsement,  the  bond  and  mortgage  quasi-negotiable — Payments  to 
and  releases  by  fraudulent  mortgagees,  -  -  -  §§  184-193 

CHAPTER    XIX. 

BONDS  AND  MORTGAGES  AS  COLLATERAL. 

The  pledgee's  title  under  assignments  as  collateral  security — His  rights 
under  fraud,  misappropriation,  etc. —  His  realization  and  recovery 
of  his  collateral  securities, §§  194-200 


PART  III.— THE  PARTIES   TO  THE  INSTRUMENT. 
CHAPTER    XX. 

THE  CONTRACT  OF  THE  SURETY. 

The  parties  to  the  instrument — The  contract  of  the  surety — His  liability  on 
invalid  loans,  or  forged  or  fraudulent  paper — On  official  bonds — Femes 
covert  and  minors,  -  -  §§  201-208 

CHAPTER    XXL 

THE  SURETY'S  RIGHT  TO  COLLATERAL. 

The  surety's  right  to  collateral  securities  held  by  creditor — When  defeated 
— Equitable  limitations  of  subrogation  —  Subrogation  of  creditor  to 
collateral  securities  of  surety — Application  of  proceeds.  -  §§  209-221 

CHAPTER  XXII. 

THE  SURETY'S  COLLECTION  OF  COLLATERAL. 

The  surety's  enforcement  in  equity  of  collateral  securities  from  principal — 
Where  given  for  indemnity  only — The  surety's  obligations  holding  col- 
lateral— His  recovery  thereon — His  action  at  law  against  the  prin- 
cipal, -  -  §§  222-229 

CHAPTER  XXIII. 
CONTRIBUTION  BY  SURETIES  WITH  COLLATERAL. 

Contribution  between  sureties  holding  collateral — Its  limitation  and  waiver 
— Application  of  proceeds  from — Primary  resort  to— Action  at  law, 
while  holding  collateral — The  right  of,  upon  payment  of  part  of  debt 
—As  between  accessory  sureties,  -  -  -  -  §§  230-238 


CONTENTS.  Vii 

CHAPTER  XXIV. 

DISCHAKGE  OF  THE  SURETY. 

The  surety  discharged  by  surrender  or  loss  of  collateral  securities — Or 
by  misrepresentations  as  to — The  effect  of  mere  delay  in  enforcement 
— Acceptance  of,  as  an  agreement  to  extend  time  of  payment — Other 
causes  of  discharge,  -  §§  239-252 

CHAPTER  XXV. 

INDORSEES  AND  GUARANTORS. 

The  rights  of  holders  of  notes  to  collateral  held  by  accommodation  indors- 
ers  or  guarantors — Subrogation  of  indorsers  or  guarantors  to  securities 
of  creditor  or  holder  of  note — Notice  to  guarantors — Duty  and  rela- 
tions of  pledgee  of  collateral  notes  to  indorsers,  -  -  §§  253-262 

PART    IV.  — QUASI -NEGOTIABLE     COLLATERAL 
SECURITIES. 

Drv.  I. — CERTIFICATES  OF  STOCK. 

CHAPTER  XXVI. 
THE  CERTIFICATE  OF  STOCK; 

Documents  of  title,  under  indorsement,  as  collateral  security — The  certifi- 
cate of  stock — Its  character  as  quasi-negotiable — "Approximating  to 
negotiable  paper  " — Indorsements  in  blank,  -  -  §§  263-268 

CHAPTER    XXVII. 

THE  PLEDGEE  OF  STOCKS,  A  HOLDER  FOR  VALUE. 

The  transfer  of  stocks  as  between  the  parties,  and  as  against  the  company 
— Transfer,  as  controlled  by  terms  of  certificates — Pledges  of  stock  by 
delivery — Insolvency  of  pledger — Pledges  for  antecedent  debt  and 
future  advances  —  Collections  of  dividends — Protection  of  prop- 
erty, -  -  §§269-281 

CHAPTER  XXVIII. 

THE  PLEDGEE,  UPON  TRANSFER,  A  STOCKHOLDER. 
The  pledgee  as  a  stockholder — Where  controlled  by  statute — Transfer,  to 
protect  pledgees  from  liabilities,  not  a  conversion — Equitable  relief  to 
pledger  upon,  -  -    §§  282-288 

CHAPTER  XXIX. 
THE   PLEDGEES'  RIGHTS,   AS  AGAINST  LIENS. 

The  Pledgee's  rights,  against  liens  of  company  or  legal  process  by  creditors 
— Liens  under  statutory  and  charter  provisions — Limitations,  waiver, 
and  loss  of  liens, §§  289-295 


yiii  CONTENTS. 

CHAPTER  XXX. 

STOCK  CERTIFICATES  AS  COLLATERAL. 

The  use  of  stock  certificates  as  collateral  by  trustees,  executors,  married 
women,  minors,  by  and  to  corporations,  and  stockbrokers — The  rules 
of  notice  as  to  trust  and  mining  stocks — Equitable  mortgages  of  trust 
stocks,  •  .....  §§296-307 

CHAPTER  XXXI. 

ILLEGAL  AND  TORTIOUS  PLEDGES  OF  STOCKS. 

The  use  of  forged,  fictitious,  and  misappropriated  stocks  as  collateral — 
The  rights  of  parties  under  forgery — Or  upon  issues  of  fictitious  stocks 
— Equitable  estoppel,  as  applied  in  favor  of  innocent  pledgees  for  value, 
as  against  companies  and  owners  of  stocks — In  cases  of  misappropria- 
tion by  brokers  or  agents — Measure  of  damages,  -  •  §§  308-318 

CHAPTER  XXXII. 

THE  SUB-PLEDGE  OF  STOCK  CERTIFICATES. 

The  transfer  and  sub-pledge  of  stocks,  by  pledgee — Sub-pledges  for  sums 
larger  than  principal  debt — Equitable  estoppel,  in  favor  of  sub-pledgees 
— Bub-pledges  under  limited  title — Application  of  proceeds  by  sub- 
pledgees — The  broker's  use  of  collateral  stock  certificates,  §§  319-327 

CHAPTER  XXXIII. 
THE  SALE  OF  COLLATERAL  STOCKS. 

Sale  of  collateral  stocks  by  pledgees  and  brokers — Sales  under  contract — 
Requirements  of  valid  notice  and  sale — The  pledgee  as  purchaser — 
The  title  of  the  bona  fide  purchaser — Measure  of  damages  upon  wrong- 
ful sale — The  pledger's  right  to  profits  on  such  sales — The  broker's 
right  of  set-off,  ....  §§328-339 

CHAPTER  XXXIV. 
THE  RIGHTS  OF  THE  PLEDGOR  OF  STOCKS. 

The  pledger's  relief  in  equity— Defeated  by  laches — Specific  performance — 
Recovery  at  law  of  pledgor — His  action  upon  transfer  by  the  pledgee 
of  stocks— When  entitled  to  return  of  collateral  stocks,  §§  840-346 

CHAPTER  XXXV. 

THE  BROKER'S  OPTION  CONTRACT. 

General  rules  as  to  option  contracts — The  "seller's  option  " — The  question 
of  evidence  of  intention — Gambling  deals  for  differences,  §§  347-355 


CONTENTS.  ix 

CHAPTER  XXXVI. 
THE  BROKER'S  SUIT  AGAINST  CUSTOMER. 

The  broker's  recovery  upon  valid  deals*,  or  upon  settlement  of  losses  at  cus- 
tomer's request — Upon  negotiable  paper  given  in  settlement — Illegal 
deals,  void  by  statute—"  Corners" — Relief  to  the  customer,  §§  356-362 

CHAPTER  XXXVII. 
USAGES  OF  STOCK  AND  OTHER  EXCHANGES. 

Usages  of  brokers  to  sell  collateral  stocks,  upon  default,  without  notice — 
Use  of  collateral  stocks — Not  to  retain  identical  stocks,  nor  ware- 
house receipts — Usages  as  to  collateral  funds,  charges,  and  inter- 
est,   §§263-372 

Drv.  2. — BILLS  OP  LADING. 

CHAPTER  XXXVIII. 
THE  BILL  OF  LADING. 

The  bill  of  lading,  by  water  or  land,  as  collateral  security — Its  character 
quasi-negotiable  except  where  negotiable  by  statute — A  symbol  of 
property,  -  §§373-379 

CHAPTER  XXXIX. 
BILLS  OF  LADING  AS  COLLATERAL. 

The  title  of  the  pledgee  of  bills  of  lading — Transfer  with  or  without  in- 
dorsement — For  antecedent  debt — Future  advances — Reversionary  in- 
terest in  a,  aa  collateral,  -  -  -  §§  380-385 

CHAPTER  XL. 

THE  PLEDGEE'S  TITLE,  AS  AGAINST  CARRIER. 

Delivery  as  essential  to  valid  bill  of  lading— The  pledge  of  fictitious  bills 
of  lading — Estoppel,  as  against  explanation  as  a  receipt  as  against 
pledgees — The  pledgee's  title,  without  notice  to  carrier — When  latter 
subject  to  legal  process,  -  -  §§  386-396 

CHAPTER  XLI. 

THE  PLEDGEE'S  RIGHTS,  UNDER  ESTOPPEL. 

Estoppel,  as  applied  to  bills  of  lading  pledged,  negotiable  or  quasi-negotia- 
ble— Estoppel  of  owner,  under  general  indorsement  of — Pledge  of 
fosged,  fictitious,  or  fraudulent  bills  of  lading — Where  pledgee  is 
chargeable  with  notice  of  limited  title  of  pledger — The  remedies  of 
the  pledgee — The  pledgee  a  holder  for  value,  against  the  unpaid  ven- 
lor,  seeking  to  enforce  his  right  of  stoppage  in  transitu,  §§  397-400 


X  CONTENTS. 

CHAPTER  XLII. 

THE  FACTOR  AS  PLEDGOR. 

The  factor,  at  common  law,  not  allowed  to  pledge — The  factor,  upon  ad- 
vances, a  pledgee — Pledgees  with  notice  of  fraud — Estoppel  in  favor 
of  innocent  pledgees  from  factors,  -  -  -  §§  407-411 

Drv.  3. — WAREHOUSE  RECEIPTS. 

CHAPTER  XLIII. 
WAREHOUSE  RECEIPTS  AS  COLLATERAL. 

Transfer  of  receipts  as  collateral,  with  or  without  indorsement — The  ware- 
house receipt  quasi-negotiable — Estoppel  of  warehouseman  by  terms  of 
receipts  as  against  innocent  pledgees — Of  owner  where  third  person 
holds  receipts — The  warehouseman's  receipts  for  his  own  property  as 
collateral — The  rule,  under  statutory  restrictions,  -  -  §§  411-421 

PART    V.—NON- NEGOTIABLE    COLLATERAL 
SECURITIES. 

CHAPTER   XLIV. 
CHOSES  IN  ACTION  AS  COLLATERAL. 

The  use  of  choses  in  action  and  equitable  assignments  of  funds  as  collat- 
eral security,  with  or  without  indorsement — Equities  to  which  pledgees 
are  subject — Part  assignments — Insurance  policies  as  collateral — Notice 
to  debtor— Divers  choses  in  action  used  as  collateral,  -  §§  423-431 

CHAPTER    XLV. 
ESTOPPEL  IN  PAIS,  IN  FAVOR  OF  PLEDGEES. 

Equitable  estoppel  as  applied  to  choses  in  action — By  representations  upon 
face  of  non-negotiable  securities — Of  owner,  under  misappropriation 
as  collateral — Blank  indorsements,  -  -  §§  432-440 

CHAPTER    XLVI. 

THE  PLEDGEE'S  RIGHTS  AND  DUTIES. 

Equitable  aid  to  the  pledgee — His  action  at  law — His  duty  as  to  collection 
and  sale  —  Application  of  payments  —  The  pledger's  rights,  upon 
wrongful  sale  or  sub-pledge — His  discharge,  upon  payment,  §§  441-448 


TABLE  OF  CASES. 


THE  REFERENCES  ARK  TO  THE   SECTIONS. 


Abbey  v.  Van  Compen,  226 

Abbott  v.  Pomfret,  15 

Ackerson  v.  Lodi  Branch  R.  R.  Co., 

124 
Adams  v.  Drake,  215,  283,  237 

v.  Jenkins,  30 

v.  Jones,  259 

v.  Merchant's  Nat.  Bank,  421 

v.  O'Connor,  404 

v.  Rowan,  191 

v.  Smith,  28 

9.  Sturges,  60,  282,  288,  343,  345, 
372 

v.  Way,  247 

Adderly  v.  Storm,  282,  283,  285 
Addison  v.  Cox,  424 
Agawara  Bank  D.  Strever,  14,  17,  32 
Agnevv  «.  Ball,  230,  233 
Agra  &  Masterman's  Bank,  in  re,  46, 

269,  273,  422,  432 
Agricultural  Bank  v.  Burr,  264,  271, 

295 

Ainsworth  v.  Brown,  250 
Alabama,  etc.,  Manf.  Co.  ».  Third 

Nat.  Bank,  409 

Albany,  etc.,  Co.  v.  Devendorf,  243 
Albert  v.  Savings  Bank,  282,   298, 

312 

Albright  v.  Griffin,  29 
Alcock  v.  Hopkins,  109,  110 
Alderman  v.  Eastern  Ry.  Co.,  404 
Aldrich  v.  Cooper,  39,  98 

9.  Hopgood,  230 

v.  Martin,  217 
Alexander  v.  Bank,  109-23 

9.  Relfe,  312 

9.  State,  51 


Alexandria  Ry.  Co.   9.  Burke,  18, 

120.  123 

Alford  v.  Baker,  144 
Alston,  ex  parte,  98, 408,  411 
Alsatt  9.  Farquharson,  49 
Allaire  9.  Hartshorne,  18,  31,  37,  43, 

46,  78 

Allen,  in  re,  144 
Allen  9.  Allen,  153 

9.  Brown,  220 

9.  Culver,  219 

9.  Dallas  Ry.   Co.,  18,43,  46, 
125 

9.  Dykers,  276,    327,  337,   363, 
369 

9.  Graves,  37 

9.  Henley,  212 

9.  King,  4,  6,  88 

v.  Massey,  421 

9.  Maury,  263,  412-413,  415 

9.  Suydam,  257 

v.  Williams,  379,  382 

9.  Wood,  238 

9.  Woodward,  209 
Alliance  Bank  9.  Broom,  23 

•».  Kearsley,  50 
Allison  9.  Sutuerlin,  212,  213 
Allis  9.  Ware,  207 
Amos  9.  McMichael,  18 
American  Ex.  Bank  v.  Corliss,  23 
American   Nat.   Bank  ».   Harrison 

Wire  Co.,  66,  104,  256 
American  Ry.  Frog  Co.  9.  Haven, 

283 

Ames  9.  Smith,  21 
Ammons  v.  Whitehead,  248 
Amy  9.  Dubuque,  47,  48 


Xll 


TABLE  OF  CASES. 


Anderson  v.  Baumgarten,  144,  158 

9.  Heath,  106 

9.  Nicholas,  383,  336,  344 
Andrews  t>.  Becker,  430 

t».  Etna  Life  Ins.  Co.,  184, 
188 

t>.  Hart,  161 

9.  Hopgood,  159 

v.  McCoy,  23 

9.  Pond,  76,  95 

'«.  Scotton,  111,  154, 156 

t>.  Thayer,  157 

9.  Torrey,  198 

v.  Marrett,  243 

«.  Wrigley,  301 
Androscoggin  R.  R.  Co.  t>.  Auburn 

Bank,  90, 100,  115 
Angle  v.  K  Y.  Ins.  Co.,  32 
Anglo-Californian  Bank  v.  Bank, 

289 

Anon,  65 

Ansonia  Fibre  Co.,  in  re,  52 
Anthony  v.  Capel,  241 

9.  Lawson,  140 
Appleton  v.  Donaldson,  23,  34,  36 

9.  Parker,  30,  249 
Arnold  v.  Camp,  109 

9.  Rock  River  R.  R.  Co.,  3 
Arbouin  t>.  Anderson,  75 
Arents  v.  Commonwealth,  43. 169 
Argentina,  The,  375.  379,  397,  398 
Argenti  ».  San  Francisco,  180,  260 
Armitage  v.  Baldwin,  215 

9.  Puliver  230 
Armour  ».  Michigan  Ccn.  R.  R.  Co., 

390,  397,  899,  432.  439 
Armstrong  t>.  Toler,  356,  859 
Arnold  v.  Delano,  405 
Arnot  v.  Woodburn,  213 
Ashby  t>.  Blackwell,  309 
Ashtcn  v.  Dakcn,  348,  852 
Ashton's  App.,  2J,  24,  138,  186.  189, 

190,  198.  324,  435 
Ashton  v.  Atlantio  Bank,  298,  301 

9.  Taylor,  75,  77 
Ashurst  c.  Bank,  65,  69 


Ashworth,  ex  parte,  106 
Asiatic  Banking  Corp ,  in  re,  303 
Asttey  v.  Reynolds,  135 
Athill,  in  re,  2 
Atlantic  Bank  v.  Boies,  2 
Atlas  Nat.  Bank  v.  Doyle,  43 

v.  Savery,  55 
Atkinson  v.  Atkinson,  265,  298 

v.  Brooks,  5,  6,  23,  27,  42,   175 
Atlantic  Bank  ®.  Ferree,  316 
Atwater  v.  Underbill,  186 
Audenried  v.  Randall,  405 
Aultman's  App.,  282 
Ault  v.  Colket,  815,  316 
Aurora  City  v.  West,  8,  47 
Austen,  ex  parte,  54 
Austin  v.  Belknap,  239,  240 

9.  Brooks,  242 

v.  Curtis,  23,  27,  87 
Averal  v.  Wade,  292 
Ayere  v.  Hays,  144,  152 

v.  French,  344 

9.  Waite,  183 

9.  Watson,  111 
Aylwin  v.  Witty,  427 
Babcock,  in  re,  153,  212,  220,  25 

•o.  Bonnell,  405 

9.  Jordan,  18 
Backhouse  v.  Harrison,  75 
Backus  v.  Coyne,  236 
Bahia  &  8.  F.  Ry.  Co.,  in  re,  275, 

310,  314,  318,  440 
Bailey  9.  Baldwin,  43,  56,  243 

9.  Bensley,  327,  329 

9.  Bidwell,  56 

9.  Brownfleld,  50,  57,  212,  215 

9.  Buchanan,  258 

9.  Clark,  52 

9.  Edwards,  247 
•   «.  Finch,  62 

9.  Malvin,  158 

9.  Merrick,  144,  147 

9.  Smith,  135,  171 
Baird  v.  Bradley,  260 

9.  Bank  of  Washington,  64, 180 

9.  Cochrane,  54    / 


TABLE   OF   CASES. 


XI)  1 


Baker  v.  Bishop  Hill  Colony,  422 

o.  Bliss,  298 

v.  Briggs,  114,  212,  239,  244 

v.  Cincinnati,  249 

v.  Drake,  306,  327,  334,  337,  366 

v.  Lehman,  154 

0.  Walker,  22,  27,  243 
Balback  v.  Frelinghuysen,  5 
Ball  v.  Gilbert,  361 
Ball,  ex  parte,  68 
Ball  v.  Wyeth,  153,  228 
Baldwin  v.  Canfield,  269,   281,  296, 
303,  304 

v.  Ely,  32,  79,  425,  438,  447 

0.  Van  Duessen,  207 
Ball  v.  Wyeth,  153 
Baltimore  v,  Ketchum,  309 
Baltimore  &  Ohio  R.  R.  Co.  v.  Wil- 

kius,  378,  386,  388 
Bank  v.  Allen,  229 

v.  Anderson,  147,  151,  152,  192 

v.  Babcock,  28 

v.  Bank,  23,  26,  61,  271,  272 

v.  Beresford,  241 

0.  Binuey,  51 

v.  Campbell,  270 

v.  Carrington,  18,  28 

v.  Case,  296 

v.  Chambers,  18,  22 

v.  Curry,  32 

v.  Dubuque  R.  R.  Co.,  126,  332 

0.  Fowler,  23,  26 

v.  Goodman.  282,  283 

0.  Guttschlick,  156 

v.  Hall,  28 

0.  Haskill,  244 

v.  Hatch,  239 

v.  Haurick,  239 

v.  Hemingiay,  72,  92 

0.  Hoge,  203 

0.  Ives,  241 

0.  Kimball,  32 

0.  Kortright,  273 

0.  Lanier,   265,   266,    270,    271, 
275,  289,  310 

0.  Leighton,  75 


Bank  v.  Myers,  241 

0.  Peabody,  106 

0.  Penfield,  35 

0,  Railroad  Co.,  46.  332 

0.  Rollins,  241 

0.  Scoville,  28 

0.  Slemmons,  135 

0.  Spence,  66 

0.  Tarleton,  144,  158,  159 

0.  Wexson,  27 

Banking  Assn.  v.  Wiltz,  276 
Banking  Co.  v.  Raultenberg,  260 
Bank,  ex  parte,  441 
Bank  of  Manchester,  ex  parte,  269 
Bank  of  Attica  v.   Manufacturer's 

Bank,  289 

Bank  of  Auburn  v.  Throop,  217 
Bank  of  Brighton  v.  Smith,  221 
Bank  of  Chemung  v.  Bradner,  55, 

57,  66 
Bank  of  Chenango  v.  Hyde,  10, 107 

0.  Osgood,  86,  90 

Bank  of  Columbia  0.  Marshall,  413, 

418 

Bank  of  Commerce's  App.,  271,  273 
Bank  of  England  v.  Parsons,  309 
Bank  of  Holly  Springs  v.  Pinson, 

263,  275,  289,  291 
Bank  of    Kentucky   v.    Schuylkill 

Bank,  314,  318,  320 
0.  Wister,  7 

Bank  of  Louisville  v.  State  Bank,  278 
Bank  of  the  Metropolis  0.  N.  E.  Bank, 

61,  298 

Bank  of  Mobile  0.  Polnitz,  23,  64 
Bank  of  Montgomery  0.  Reese,  337 
Bank  of  New  York  0.  Vanderhorst, 

1,  16,  27,  65,  81 

Bank  of  Pittsburg  v.  Neal,  32,  66,  75 
Bank  of  Rochester  0.  Bowen,  55 

0.  Jones,  379,  380,  382,  403,  408 
Bank  of  Rome  0.  Village,  8 
Bank  of  Rutland  v.  Buck,  35 

v.  Woodruff,  102,  109,  129 
Bank  of  Salina  v.  Babcock,  27 
Bank  for  Savings  0.  Frank,  185 


A* 


XIV 


TABLE  OF   CASES. 


Bank  of  South  Australia  ».  Case,  52 
Bank  of  St.  Albans  v.  Gilliland,  28, 

75 

Bank  of  Toronto  «.  Hunter,  255 
Bank  of  U.  S.  v.  Hatch,  258 

v.  Peabody,  15 

v.  Patton,  229 
Bank  of  Utica  v.  Bank,  272,  291 

v.  Smalley,  270,  271,  273 
Bangs  v.  Story,  209 
Banning  v.  Markham,  3 
Bancroft  v.  Abbott,  228 

t>.  McKnight,  65 
Bange  t.  Flint,  23,  28,  153.  161 
Bangs  v.  Mosher,  243 

t>.  Strong,  242,  247 
Barber  ».  Meyerstein,  394,  396,  379 
Bardsley  v.  Delp,  28 
Baren  v.  Haskins,  223 
Barker,  in  re,  283 
Barnard  v.  Backhaus,  349,  351,  359 

v.  Campbell,  400,  414,  417 
Barnes  t>.  Mott,  239,  240 
Barnett  v.  Nat.  Bank,  139 
Barney  v.  Earle,  28 
Barre  Nat.  Bank  v.  Kingham  Man. 

Co.,  282,  286 
Barrett  v.  Russell,  56 

v.  Swan,  51 
Barrow  v.  Rhinelander,  88,  114 

v.  Shields,  240 
Barry,  ex  parte,  278,  279 
Barry  t>.  Ransom,  203,  233 
Bartlett  t.  Cunningham,  220 

t>.  Smith,  346,  359 
Barton  v.  Peterson,  279 
Bast  v.  Bank,  85,  86,  442 
li.i^'jtt ».  Spofford,  399 
Batnrd  v.  Hawes,  238 
Batchelder  v.  Fiske,  230,  232,  238. 

252 

Batchelor  «.  Nat  Bank,  206 
Batchellor  v.  Priest,  90,  257 
Bate  v.  Conyngham,  292 
Batcman  v.  Joseph,  89 

•.  Poolc,  102,  106,  129 


Bates  ».  Todd,  392,  393 

t>.  Wiles,  336 
Batesville  Inst.  v.  Kauffmann,  144, 

181,  446 

Bayard  v.  Bank,  273 
Bayley  v.  Gould,  144 
Beach  t>.  Fulton  Bank,  312 
Beach  v.  Mosgrove,  143,  144 
Beadle  v.  Southern  Bank,  65 
Beal  v.  Warren,  423,  425 
Beale  v.  Bank,  90 
Beals  v.  Neddo,  144,  161,  168 
Beavan  v.  Oxford,  428 
Beaver  v.  Beaver,  226 

«.  Blanker,  212,  214 
Beaver  Co.  v.  Armstrong,  43,  47 
Beavers  v.  Lane,  397 
Bebout  v.  Bodle,  247 
Becker  v.  Hallgarten,  263,  373,  382, 

383,  405 

Beckham  v.  Drake,  52 
Beckwith  v.  Burroughs,  293 

v.  Sibley,  104,  108 
Bedford  ®.  Dakin,  58,  242 
Beebe  v.  Bank,  185,  241,  255 
Bcecher  v.  Wells,  etc.,  Co.,  264,  271, 

282 
Belcher  v.  Hartford  Bank,  79,  217j 

239 
Belden  t>.  Davis,  422 

v.  Manley,  65,  78,  158,  159 

v.  Meeker,  431 

v.  Perkins,  409 
Belknap  v.  Gleason,  156 
Bell  v.  Jasper,  230 

9.  Lent,  136 

v.  Martin,  243 

0.  Simpson,  16,  143,    144,  153, 

175 

Bellas  v.  McCarty,  301 
Belloni  v.  Freeborn,  222,  224 
Belmont  v.  Hoge,  65 
Belohradsky  ».  Kuhn,  155,  170 
Belshaw  v.  Bush,  109,  110 
Bemis  v.  Wadill,  54 
Benedict  v.  Caffe,  258 


TABLE   OP   CASES. 


XV 


Benon  v.  Paquin,  115,  129 
Bennett  v.  Cook,  254 
Benson  v.  Stewart,  156 
Bentley  v.  Bates,  429 
Beresford  v.  Ward,  144 
Bergen  v.  Urbahn,  107 
Berger  v.  Williams,  221 
Berkeley  v.  Watling,  392 
Berlin  v.  Eddy,  369 
Berndtson  0.  Strang,  397,  405 
Berry  0.  Alderman.  56 

v.  Van  Beuren,  140 
Berryman  v.  Mauker,  245 
Berthold  v.  Berthold,  212 
Bertrand  v.  Barkman,  23,  27 
Best  v.  Crall,  4,  16 
Bettune  v.  Wallace,  222,  234 
Bevan  v.  Lewis,  52 
Biddle  v.  Bayard,  265 
Bigelow  v.  Baldwin,  228 

v.  Benedict,  346,   348,  349,350, 
353 

v.  Cassidy,  213 
Biggs  v.  Barry,  405 
Billard  v.  Raynor,  140 
Billings  v.  Sprague,  240 
Billington  v.  Waggoner,  140 
Bird  v.  Cockrem,  48,  69,  95 
Birt  v.  Birt,  62 

Bishop  v.  O'Connor,  212,  214 
Bissell  v.  Ry.  Co.,  180,  260,  312 
Bittleston  0.  Cook,  16 
Black  v.  Zacharie,  265,  271 
Blackburn  v.  Shaw,  250 
Blackburn  Bldg.  Society  v.  Cuniiff, 

180 

Blackford  v.  Brown,  227 
Black  River  Bank  v.  Page,  114,  209, 

220 

Black  well  v.  Barnett,  157 
Blair  v.  Mathiott,  186 
Blaisdell 0.  Smith,  156 
Blakely  v.  Johnson,  245 
Blakely  Ord.  Co.,  in  re,  46,  49 
Blakesly,  in  re,  43 
Blanc  v.  Hartzog,  100,  343 


Blanchard  n.  Dedham  Gas  Co.,  271, 
295 

v.  Stevens,  7,  18,  24,  175 
Blanchett  v.  Powell  Co.,  392 
Blazer  v.  Bundy,  249 
Blinn  v.  Chester,  228 

0.  Evans,  50 
Bliven  0.  Hudson  River  Ry.  Co., 

394 

Blodgett  v.  Weed,  51,  56,  57 
Blouin  0.  Hart,  93,  276 
Blumenthal  v.  Jassey,  145-151, 153, 

172 
Blunt  v.  Norris,  144,  153,  164, 175- 

177 

Blydenburgh  v.  Bingham,  247 
Blyth  v.  Carpenter,  341 
Board  of  Supervisors  v.  Otis,  241 
Boardman  v.  Holmes,  441 
Boaler  v.  Mayor,  250 
Bodenham  v.  Hoskyns,  62 
Body  v.  Jewson,  23 
Boling  v.  Young,  249 
Bolton  v.  Dugdale,  3 

v.  R.  R.  Co.,  405 
Bonar  v.  Macdonald,  245 
Bonbonus,  ex  parte,  50,  54 
Bond  v.  Aitkin,  59 

0.  Central  Bank,  18 

v.  Fitzpatrick,  95 

v.  Mount  Hope  Co.,  273 

v.  Wiltze,  16 

Bonham  v.  Galloway,  220,  228 
Bonito  v.  Mosquero,  407,  408,  41l 
Bonney,  in  re,  328 
Bonnsavill 0.  Wolf,  241 
Booth  v.  Storrs,  244 

0,  Wiley,  210 

Boogher  0.  Life  Assn.,  312 
Borden  0.  Gilbert,  262 
Borland  v.  Clark,  315,  316 
Borney  v.  Seeley,  228 
Borst  v.  Corey,  156 
Borup  0.  Meininger,  257 
Bosanquet  v.  Forster,  23 
Bosley  v.  Taylor,  237 


XVI 


TABLE  OF  CASES. 


Boss  v.  Hewitt,  48 

Boston  Music  Hall  Assn.  r.  Cory,  293 

Bostwick  v.  Dodge,  28 

Boswell  v.  Goodwin,  144 

e.  Green,  50 

Botts  *.  McCoy.  407,  408,  411 
Bouligny  v.  Fortier,  178 
Boulton,  ex  parte,  276,  278 
Bowman  v.  McElroy,  173 

v.  Van  Kuren,  16,  23 

c.  Wilson,  43 

«.  Wood,  90 
Bowden  v.  Farmer's  Bank,  282,  295 

v.  Johnson,  285 
Bowditcli «.  Green,  129 
Bowen  v.  Haskins,  215 
Bowring  v.  Shepherd,  371 
Boyd  v.  Beck,  23 

0.  Brotherson,  33 

v.  Corbitt,  5 

«.  Cummings,  27,  34,  65 

«.  Dunlop,  190 

t>.  Hind,  228 

v.  Kennedy,  43 

«.  Parker,  144,  161 
Boyer  v.  Keystone  Nat.  Bank,  39 
Boylan  v.  Huguet,  336,  344,  3G9 
Boys,  in  re,  5,  62 
Brackett  v.  Winslow,  233,  237 
Bradley  v.  Ballard,  180 

«.  Burwell,  252 

e.  Chester  Valley  Co.,  154 

v.  Root,  424 

Bradner  «.  Campbell,  401 
Bradshaw  v.  Combs,  247 
Bradstreet  v.  Heran,  392,  393,  397 
Braham  >:  Ragland,  256 
Brainerd  v.  Jones,  221 
Brainard  v.  Reaves,  23,  25 

v.  N.  Y.  R.  R.  Co.,  8,  43 
Bramah  «.  Roberts,  22 
Bramhall  t».  Beckett,  14,  23 
Branch  Bank  v.  James,  203 
Brandao  v.  Barnett,  61,  298 
Brandt ».  Bowlby,  381 
Brass  ».  Worth,  331 


Braught  v.  Griffith,  215 
Breckenridge  v.  Shrieve,  50 
Breese  v.  Schuler,  228 
Breidenbecker  v.  Lowell,  219 
Brcngle  v.  Bushey,  242 
Brett,  ex  parte,  214 
Brewer  r.  Franklin  Mills,  213 
Brewster  v.  Galloway,  431 

v.  Hartley,  264,  303 

v.  Simes,  298,  300,  320,  382 
Brice's  App.,  144 
Brice  «.  Bannister,  424,  446 
Brick  ».  Brick,  287,  340 

v.  Freeholders  etc.  Co.,  220 
Bridge  v.  Hubbard,  140,  141 
Bridgeport  Bank  v.  N.  Y.  &  N.  H. 

Ry.  Co.  263,  267,  270,  275,  311 
Bridgeport  City  Bank  v.  Welch,  18 
Brierly  v.  Kendall,  409 
Brigden  v.  Cheever,  238 
Briggs  v.  Boston  R.  R.  Co.,  409 

«.  Dorr.  192 

«.  Jones,  436 

t>.  Rice,  143, 161, 164, 175, 181 
Brigham  v.  Potter,  148 
Bright  v.  Judson,  23 
Brinkerhoff  v.  Brinkcrhoff,  187 

v.  Foot,  141 

v.  Lansing,  14 
Brinton  v.  Gerry,  239 
Brisbane  «.  Railroad  Co.,  273,  31 
Bristol  Co.  v.  Probasco,  29 
Brittain  v.  Quett,  226 
Broadbent  v  Barlow,  408,  411 
Broadway  Bank  v.  McElrath,  265, 

271,  273,  293 

Broad  well  v.  Howard,  413,  420 
Brombey  v.  Smith,  189 
Brooklyn  v.  Ins.  Co.,  8,  43,  47,  48 
Brookman  v.  Metcalf,  16, 117 

c.  Rothschild,  332 
Brooks  v.  Rice,  80,  83 

v.  White,  228 

v.  Whitson,  23 
Brower  v.  Pcabody,  8,  399 
Brown,  in  re,  392,  897 


TABLE  OF  CASES. 


XV11 


Brown  c.  Bateman,  424,  446 

0.  Black,  371 

v.  Blydenburgh,  145 

v,  Bowen,  390 

v.  Cascaden,  154 

0.  Curtis,  253 

v.  Delaney,  144,  158 

v.  Davis,  76 

v.  Graw,  328 

v.  Hall,  353 

v.  Kent  Co.,  205 

v.  Kidger,  50 

v.  Kneeland,  295 

v.  Leavitt,  28 

v.  Lee,  238 

v.  McGraw,  364 

v.  Meyers,  348 

0.  Mott,  41,  42 

0.  Powell  Co.  386,  388,  392 

0.  Prophit,  247 

0.  Ray,  50,  217,  212, 230,  234, 235 

0.  Rockhold,  156 

0.  Runolo,  133 

0.  Scott,  29 

0.  Tyler,  120,  161, 164,  175,  183 

0.  Ward,  117.  120,  121,  331 

0.  Warren,  9,  16 
Bronson  0.  Fitzhugh,  250 
Brownlow  0.  Arnold,  158 
Brua's  App.,  346,  349,  350,  359,  360 
Bruce  0.  Gardner,  426 
Brush  v.  Scribner,  18,  28,  65 
Bryan  v.  Baldwin,  331,  332 

0.  Carter,  289 
Bryant  v.  Damon,  144,  158 

0.  Vix,  17 

Bryson  v.  Rayner,  332,  334 
Buchanan  0.  International  Bank,  17, 

111,  147,  170 

Buck  v.  Albee,  349,  350,  351,  361 
Buckley  v.  Garritt,  97 
Buckmaster  v.  Consumer's  Ice  Co., 

341 

Buckner  0.  Street,  156 
Budd  v.  Monroe,  298 
Bufflngton  0.  Curtis,  381,  382 


Bulkley  0.  Garrett,  441 
Bull  0.  Bliss,  261 

0.  Bull,  228 
Bullard  v.  Bank,  289 

0.  Randall,  444 
Burbank  v.  Warwick,  168 
Burchart  0.  Dresser,  50 
Burdett  0.  Clay,  144 
Burgess  v.  Seligman,  8,  282-284,  287, 

303 

Burgett  0.  Patton,  237 
Burhaus  v.  Hutcheson,  144,  151, 161, 

16*7    ' 

Burke's  App.,  340 
Burke  ».  Noble,  250 

v.  Savage,  404 
Burkett  0.  Taylor,  334 
Burleigh  0.  Parton,  54 
Burling  v.  Goodman,  153 
Burlingame  v.  Green,  129 
Burmester  0.  Norris,  52 
Burnhisel  v.  Firman,  15,  16,  141,  143 
Burns  v.  Burrows  253 

0.  Huntington  Bank,  213,  237 
Burnside  0.  Fetzner,  215,  254 
Burr  0.  Boyer,  240 

0.  Smith,  214 

0.  Wilcox,  283 
Burrall  v.  Bushwick,  264 
Burrell,  in  re,  127,  181 
Burridge  0.  Row,  427 
Burrows  0.  Bangs,  442,  446 

0.  Gore,  297 

0.  Hannigan,  258 
Burt  0.  Dutcher,  337 

0.  Fowler,  261 
Burtis  0.  Cook,  422 
Burton's  App.,  263,  265,  316 
Burton  0.  Baxter,  147 

0.  Curyea,  401,  412,  413 

0.  Peterson,  14,  263,   265,  267, 
316 

0.  Wilkinson,  394 
Bush  v.  Cooper,  156 

0.  Crawford,  50 

0.  Cushman,  186,  189 


XV111 


TABLE   OF  CASES. 


Bush  v.  Lathrop,  185,  198,  422 

v.  Stamps,  217 
Bushell,  ex  parte,  56 
Bushncll  v.  Chautauqua  Nat.  Bank,  • 
63 

«.  Kennedy,  7 
Bu swell  v.  Pioneer,  109 
Butler  o.  Bc-rkiu,  212,  230,  2o4 

v.  Carter.  297 

«.  Ladue,  223,  225 

9.  Miller,  108,  113 

t>.  Slocurab,  153,  173,  176 
Butterfleld  ».  Stevens,  328,  334,  364 
Butters  v.  Haugbwort,  18 
Buttenvorth  v.  Kennedy,  104,  280, 

304 

Butts  v.  Dean,  29,  30 
Cabeen  v.  Campbell,  405 
Cabot  Bank  v.  Bodman,  254 
Cady  v.  Potter,  295 

».  Sheldon,  261 
Cain  v.  Hanna,  159 
Caines  v.  Bates.  220 
Cairo  Nat.  Bank  v.  Crocker,  373, 

380 

Calahan  v.  Babcock,  405 
Calais  Steamboat  Co.  v.  Van  Pelt,  75 
Caldwell  v.  Ball,  381 

T.  Bartlett,  414 

v.  Warehouse  Co.,  135 
Calhoun  v.  Delhi  Ry.  Co.,  44 
Calkins  v.  Lockwood,  17,  217 
Callanan  v.  Shaw,  137. 
Calvo  v.  Davis,  203,  250 
Campbell  v.  McHarg,  141 

v.  Mesier,  230,  233 

v.  Morgan,  265,  272 

t>.  Parker,  194,  199,  334 

9.  Vader,  147 

Cameron  «.  Durkhcim,  331 ,  834,  349 
Canadian  Bank  «.  McCrea,  401,  412, 

417 
Canneld  v.  Minneapolis,  etc.,  Assn., 

319,  832,  340 
Cannan  v.  Bryce,  859 
Capen's  App.,  65,  214 


Capron  v.  Smith,  322 

9.  Thompson,  306 

Cape  Girardeau  Co  v.  Harbison,  156 
Capel  v.  Butler,  239 
Cardin  v.  Jones,  90 
Carey  v.  Railroad  Co ,  180,  260 
Carlisle  t>.  Hill,  135 

v.  Wishart,  28 
Carpenter  v.  Insurance  Co.,  21 

9.  Kelly,  232 

9.  King,  239,  244 

v.  Longan,    143,   144.   148-150, 
153,  161,  162,  165,  193 

«.  O'Doughcrty,  207 
Carr,  ex  parte,  447 
Carr  ®.  Carr,  175,  194 

i>.  Fielding,  106,  156 

v.  Hilton,  298 

v.  London  Ry.  Co.,  392, 397, 434 

v.  Roberts,  222,  224 

9.  Waugh,  430 
Car  ra way  v.  Oleneal,  248 
Carriere  v.  Ticknor,  29 
Carroll  v.  Mullanphy  Savings  Bank, 
267.  269,  271,  289,  291,  332 
Carter  v.  Carter,  221 

t>.  Duncan,  249 

v.  Howe  Mach.  Co.,  312 

9.  Nat.  Bank,  29G,  301,  302 

9.  Wake,  119,  120,  126,  329 
Cartwright  v.  Wilmerding,  383,  418, 

411-413 
Cary  v.  Holmes,  238 

v.  White,  242,  243 
Case  9.  Bank,  273,  289-291 

v.  Boushton,  104 

v.  Hawkins,  240 

v.  Mechanic's  Bank.  Assn.,  66, 

78 
Casey  v.  Cavaroc,  13,  133 

v.  Nat.  Bank,  13 

t>.  Schneider,  6,  9,  13 
Cassard  v.  Hinman,  34&-850 
Cassidy  «.  First  Nat.  Bank,  425 

v.  Keeley,  212 
Castellan  v.  Hobson,  871 


TABLE   OF  CASES. 


XIX 


Castelman  0.  Holmes,  28 

Cater  ».  Merrill,  413 

Cathcart's  App.,  144 

Catskill  Bank  0.  Messenger,  250 

Causey  v.  Yates,  135 

Caussidere  e.  Beers,  402 

Cayuga  Bank  v.  Hunt,  35 

Cazet  v.  Field,  148,  161 

Cecil,  in  re,  283 

Cecil  Bank  v.  Heald,  28 

Central  Nat.  Bank  v.  Pratt,  139 

Central  Trust  Co.  v.  Nat.  Bank,  180 

Chadwell  v.  Wheless,  144 

Chaffee  v.  Jones,  230,  237,  238 

0.  Talliaferro,  240 
Chamberlain  v.  Greenleaf,  280,  319, 

820,  326,  340,  342,  369 
Chambers  0.  Manchester    etc.  Ry. 

Co.,  205 

Chambersburg  Ins.  Co.  v.  Smith,  2 
Champncy  -o.  Coope,  195 
Chandler,  in  re,  355 
Chandler  v.  Fulton,  405 

v.  McKinney,  207 
Chapin  v.  Thompson,  140 
Chapman  0.  Brooks,  79 

v.  Clough,  111,  113 

9.  Lee,  108,  113,  154,  156 
Charles  0.  Marsden,  41 
Charlotte  Bank  v.  Lineberger,  248, 

250 
Chase  v.  Bank,  283 

0.  Chapin,  278 
Cheap®.  Cranwood,  370 
Cheesebrough  v.  Millard,  98,  231,  239 
Cheever  v.  Meyer,  263,  264,  269,  271, 

273,  275,  331 

Chemung  Canal  Bank  v.  Bradner,  56 
Chenowith  v.  Chamberlain,  57 
Cherry  0.  Frost,  15,  263,  264,  267, 
269,  271,  279,  320,  325 

0.  Lea,  14 

9.  Miller,  239,  241,  247 
Chester  v.  Bank  of  Kingston,  239 

v.  Wheelwright,  97 
Chester  Glass  Co.  v.  Dewey,  264 


Chestnut  Hill  Turnpike  Co.  v.  Rutter, 

312 
Chew  v.  Bank  of  Baltimore,  309 

0.  Buchanan,  158,  159 
Chicago,  D.  &  V.  Ry.  Co.  v.  Lowen- 

thal,  174 

Chicago  Lum.  Co.  0.  Ashworth,  157 
Chicago  Co.  v.  Lowell,  410 
Chickering  v.  Fullerton,  422 
Chicopee  Bank  v.  Chapin,  1,  16,  18, 

42,  46,  70.  78,  93,  175 
Child  v.  Hugg,  306,  331,  334 
Childs  v.  Corp,  88,  114 

v.  Hudson's  Bay  Co.,  290 
Chilton  v.  Chapman,  231 
Chinncry  v.  Viall,  409,  552 
Chitty  v.  Glenn,  229 
Chouteau  9.  Allen,  74,  100,  121 

v.  Burlando,  156 

Chouteau  Springs  Co.  v.  Harris,  273 
Christian  v.  Newburry,  144 
Christian  Union  v.  Yount,  180 
Christie  v.  Sawyer,  424 
Christiner  0.  Brown,  239 
Christmas  v.  Griswold,  423 

v.  Russell,  423,  424 
Christy  0.  Dyer,  154 
Chrysler  0.  Renois,  27,  23 
Church  0.  Malloy,  248 

0.  Simmons,  220 

0.  Smith,  158,  159 

®.  Sparrow,  51,  52 
Churchill  v.  Hunt,  222,  224 
Citizen's  Bank  0.  Knapp,  100,  343 
Citizen's  Nat.  Bank  0.  Leming,  139 
City  Fire  Ins.  Co.  0.  Olmstead,  278 
City  0.  Lawson,  47 
City  Bank,  ex  parte,  49 
City  Bank  0.  Armstrong,  61 

0.  Babcock,  122,  334 

0.  Johnson,  343 

9.  Perkins,  4,  10,  72.  78,  90,  91 

0.  Rome,  382 

0.  Taylor,  81,  112 

0.  Tuckie,  255 
City  Nat.  Bank  0.  Dudgeon,  213 


TABLE   OF   CASES. 


City  of  Chicago  v.  Gage,  205 
Cily  of  Lexington  «.  Butler,  7 
City  of  Philadelphia  App.,  424 
Clack  v.  Holland,  427 
Clafliu  v.  Kimball,  424 

v.  Ostrom.  253 

«.  South  Carolina  R.  R.,  17,  43 
Clagett  o.  Salmon,  250 
Clapp  v.  Lebanon  Bank,  212 

v.  Rice,  250 

0.  Sheppard,  175,  183 
Clark  0.  Badgley,  134 

v.  Bardett,  259 

v.  Bouvain,  334 

0.  Bryce,  205 

0.  Bush,  221 

«.  Dearborn,  56,  409 

0  Devlin,  202,  258 

0.  Ely.  23,  217,  218,  238 

0.  Figes,  153 

v.  Finlon,  140 

v.  Foss,  346,  348,  350,  354,  356, 
358 

0.  Henry,  175, 194 

0.  Iowa  City,  8,  47 

0.  Iselin,  11, 15, 16 

0.  Loker,  25 

0.  Loomis,  136 

v.  Roberts,  422,  436 

0  Sickler,  241 

0.  Young,  93 
Claridge  v.  Dalton,  89 
Clasey  v.  Sigg,  161, 165,  171 
Clason  v.  Morris,  212,  233 
Clay  v.  Cottrell,  54 
Clement  v  Leveritt,  4,  65 
Cleveland  v.  Borem,  132 

0.  Cohrs,  144 

0.  Martin,  144 

v.  State  Bank,  23.  26,  279 
Clinton  Bank  v.  Ayres,  33 
Clinton  v.  Cox,  156 
Clopton  ».  Spratt,  239,  240,  241 
Clow  v.  Derby  Coal  Co.,  209,  239,  240 
Clute  v.  Robinson,  185 
Coutes  App.,  212 


Cobb  v.  Dows,  402 

0.  Doyle,  18 

v.  Prell,  246,  249,  351 
Coburn  v.  Parker,  227 

v.  Webb,  32 
Cochrane  v.  Cushing,  213 

v.  Rippey,  420 
Coddington  v.  Bay,  23,  24,  71 

v.  Davis,  258 
Coe  i>.  R.  R  Co  ,  7 
Coggill  v.  Hartford  Ry.  Co.,  401 
Cohen  v.  Gwynne,  315,  316 

0.  Hole,  109,  110 
Colby  v.  Everett,  156 
Cold  v.  Ives,  264 
Colderwood  v.  McCrea,  348,  350 
Cole  v.  Fox,  220 

v.  Milmine,  346,  348 

v.  Sackett,  109 

v.  Whitman,  132 

Colehour  v.  State  Savings  Inst.,  170 
Coles  v.  Bank  of  England,  315,  316 

v.  Bristowe,  268,  363 

v.  Pack,  259 
Coleman  v.  Riches,  388 
Colgrove  0.  Tallman,  220 
Colket  v.  Ellis,  334,  364 
Collamer  v.  Langdon,  30,  109 
Collett  v.  Emmett,  32 
Collier  v.  Martin,  4 
Collins  v.  Gilbert,  1,  38,  42,  76 

«.  Martin,  22,  65,  72,  78,  81 
Collinson  v.  Lister,  801,  302 
Collis  v.  Emett,  66 
Column  v.  Eastern  Counties  Ry.  Co., 

260 

Colona  v.  Eaves,  44 
Colt  v.  Ives,  294 

0.  Lasiner,  73 

v.  Owens,  334,  337 
Coltman,  in  re,  205 
Combe  t>.  Wolff,  14,  247 
Combes  v.  Chandler,  422,  425,  436 
Com.  Exchange  Nat.  Bank  v.  Bab- 
cock,  29,  118,  207 
Commercial  Bank  v.  Hughes,  61 


TABLE   OF   CASES. 


XXJ 


Commercial  Bank  v.  Kortright,  263, 

285 

0.  Martin,  106,  116,  175 
0.  Pfeiffer,  8  SO,  408 
0.  Ramsey,  54 
Commercial  etc.   Ins.  Co.  v.  Scan- 

rnon,  180 
Commissioners  Knox  Co.  V.  Aspin- 

wall,  47 

Commonwealth  v.  Cox,  237 
0.  Pittsburg,  43 
v.  Holmes,  206 
v.  Vanderslice,  240 
v.  Watmough,  271,  293,  363 
Comper  v.  Cunningham,  397 
Compton  v.  Blair,  89,  106, 133 
ComsttQck  v.  Gage,  244 

v.  Smith,  29,  108-110 
Cottam  v.  Eastern  Counties  Rys., 

308 
Conant  v.  Seneca  Co.  Bank,   274, 

280,  291,  303 
Conger  v.  City  of  New  Orleans,  276, 

343 

Connecticut  v.  Bradish,  147 
Com.  Mu.   Life  Ins.  Co.  v.  Jones, 

107,  154 

v.  Ry.  Co.,  260,  350 
Connerly  v.  Planter's  Ins.  Co.,  81, 

34,  41 
Conover  v.  Hill,  238 

v.  Van  Mater,  186 
Conrad  v.  Atlantic  Ins.   Co.,   271, 

380,  381 
v.  Foy.  220 

Constant  v.  Matteson,  217 
Continental  Nat.  Bank  v.  Eliot  Nat. 
Bank,    263,  265,  270,  273, 
293 

v.  Townsend,  31,  34,  85 
Cook,  ex  parte,  299 
0.  Armstrong,  229 
v.  Davis,  346,  348,  349 
v.  Helms,  23 
v.  Norwood,  66 
0.  Satterlee,  3 


Cook  t>.  Tullis.  15, 16 
Cooke  v.  Chaney,  114 
Cookes  0.  Culbertson,  156 
Cool  t>.  Phillips,  413,  420 
Coolidge  v.  Lamed,  156 
Cooper  0.  Condon,  29 

v.  Dietrich,  253 

v.  Evans,  246 

0.  Meyer,  66 

v.  McClurhan,  54 

0.  People,  204 

v.  Thompson,  7 
Conyngham's  App.,  132,  331,  33b, 

338 

Cope  v.  Smith,  220 
Copeland  v.  Manton,  23,  26 
Copis  v.  Midclleton,  213,  215,  219 
Copley  v.  Machine  Co.,  312 
Copper  v.  New  Jersey  City,  43 
Corbett    v.    Underwood,   146,   162, 

247,  248,  328,  349,  367 
Corcoran  v.  Powers,  135, 136 
Corey  v.  Leonard,  212 
Core  v.  Wilson,  203 
Cork  &  Y.  Ry.,  in  re,  43,  180 
Cornell  v.  Hickens,  162 
Corneyfl.  De  Costa,  258 
Cornick  v.  Richards,    263,  264,  26Y, 
269,  271,  289,  293 

v.  Murray,  185 
Cornog  0.  Fuller,  147 
Cortelyou  v.   Lansing,  121,  131,  831 
Cornwall  ®.  Gould,  227 
Cothart  0.  Ballard,  35 
Cott rail's  App.,  212,  255 
Couch  0.  Mills,  250 
County  of  Beaver  v.  Armstrong,  8 
County  of  Clay  0.  Society  of  Sav- 
ings, 43,  44 

County  of  Ray  v.  Vansycle,  47 
Covell  v.  Hitchcock,  405 

0.  Loud,  307,  328,  334,  364 
Coventry  0.  Gladstone,  397,  405 
Cover  v.  Black,  14 
Cowdrey  v.  Vanderburgh,  422,  436, 
438 


xxii 


TABLE  OF  CASES. 


Cowell  v.  Edwards,  238,  252 

t>.  Spring  Co.,  180 
Cowles  v.  Burns,  152 
Coxe  «.  Harden,  381 
Craft  v.  McConoughy,  361 

«.  Miss.  &  T.  R.  R.  Co.,  403 
Crafts  v.  Mott,  215 
Craig  v.  Parkis,  95, 253,  261 
Crain  v.  Paine,  156 
Crane  v.  Ailing,  250 

«.  March.  153,  162, 163 

t>.  Turner,  185 
Craythorne  t>.  Swinburne,  213.  215, 

230,  233, 237,  238 
Crawford  v.  Richeson,  239 
Creamer  v.  Perry,  258 
Crease  t.  Babcock,  282 
Creath  n.  Sims,  248 
Creech  v.  Byron,  95 
Creery  v.  Holly,  158 
Creighton  v.  Hyde  Park,  424,  430, 

446 

Creswell  o.  Lanahan,  133 
Crist  v.  Burlingame,  204 
Crocker  t>.  Crocker,  298,  316,  317, 
320,  397,  421 

«.  Nat.  Bank,  139 

t>.  Thompson,  151 
Crofts  v.  Beale,  22,  37 
Croft*.  Bunster,  150,  153,  162 

t>.  Williams,  73 
Cromwell's  App.,  217 
Cromwell  v.  County  of  Sac,  8,  42, 

46,  47,  57,  153 
Cronin  v.  Patrick  Co.,  45 
Crook  v.  Jadis,  75 
Crosby  c.  Brownson,  144 

«.  Crafts,  217,  241,  251 

c.  Long,  68 

t>.  Roub,  16, 165 

e.  Wyatt,  250 
Crossley  v.  Glasgow  Life  Ins.  Co., 

420,  446 

Crossman  v.  Wohlleben,  247 
Crosthwait  v.  Ross,  50 
Crouch  v.  Credit  Foncier,  49 


Crow  v.  Clay,  108 

t>.  Vance,  144 
Cruger  0.  Burke,  242 
Cruikshank  v.  Duffin,  301 
Cruise  ».  Paine,  371 
Cullom  v.  Bloodgood,  50 
Cullum  V.  Branch  Bank,  23 

v.  Irwin,  144,  160 
Culver  0.  Benedict,  18 
Cumberland  Ry.  Co.  v.  Baab,  312 
Cummiugs  v.  Boyd,  23,  34 
Cunningham  v.  Hawkins,  157 
Currie  v.  Misa,  22,  24 
Currier  «.  Fellows,  232 
Curry  v.  McCauley,  217,  240 
Curtis  v.  Hubbard,  30. 144 

v.  Leavitt,  303 

v.  Mohr,  16 

«.  Tyler,  217,  254 

0.  Valiton,  141 

Curtius  v.  Caledonia  Ins.  Co.,  446 
Cushman  v.  Thayer  Manf.  Co ,  271, 

341 

Cutler  v.  Haven,  145 
Cutting  v.  Dameral,  267,270,  271,  278 

v.  Malor,  88 
Cutts  v.  Gould,  422 

v.  York.  Mauf.  Co.,  175 
Duke  v.  Cahawba  Nav.  Co.,  293 
Dalton  v.  Midland  Ry.  Co.,  309 

v.  Smith.  183 

Dammick  v.  Hubbard,  220 
Dana  v.  Conant,  56,  261 

«.  Lull,  50 

Danbury  v.  Robinson,  186,  187 
Dando's  App.,  305,  328 
Danforth  v  Semple,  247 
Daniel  «.  Joyner,  224 
Daniels  v.  Meinhard,  424 
Darst  v.  Bates,  109,  228,  239,  262 

v.  Gale,  170 
Darling  v.  March,  57 
Darlow  v.  Cooper,  111 
Daubigny  v.  Duval,  407 
Davenport  Nat.  Bank  v.  Homeyer, 
382 


TABLE   OF   CASES. 


XX111 


Davidson's  Case,  283 
Davidson  v.  Allen,  159 

v.  Lanier,  32 

«.  Young,  433 

Davis  0.  Bank    of    England,    202, 
309 

«.  Barr,  186 

t>.  Barrington,  203 

v.  Beckstein,  422,  436 

v.  Bigler,  407 

t>.  Blackwell,  55 

fj.  Bradley,  69,  95 

v.  Carson,  25 

«.  Emerson,  238 

v.  French,  302 

0.  Humphreys,  236 

0.  Leopold,  185, 191 

v.  Maynard,  14 

v.  People,  247 

0.  Perrine,  215 

0.  Randall,  17,  32, 139 

v.  Richardson,  50 

v.    Russell,   18,    407,  408,  413, 
415 

v.  Snead,  220 

v.  Stainbank,  202,  203 

v.  Stalls,  207 

v.  Stevens,  285 

0.  Wells,  259,  260 
Davis  etc.  Co.  v.  Jones,  261 

v.  Buckles,  244 
Davy  v.  Prendergrass,  249 
Day  T).  Elmore,  261 

v.  Hickney,  29,  30 

v.  Holmes,  267,   288,   323,   332, 
345,  368 

V.  Leal,  242 

v.  Saunclers,  66 

V.  Thompson,  29 
Dayton  v.  Trull,  88 
Dayton  Nat.  Bank  v.  Bank,  14,  17, 

32,  264,  278,  289,  303,  379 
Deacon  v.  Stoddart,  214 
Deal  v.  Cochran,  220 
Dean  v.  Howell,  135 

v.  King,  388,  392,  393 


Dearie  v.  Hall,  428 
Dearborn  v.  Taylor,  144 
Debout  v.  Bodle,  248 
Decatur  Bank  v.  Speuce,  66 
DeClery  v.  Jackson,  448 
Dedham  Bank  v.  Chickering  204 
Deering  v.  Winchelsea,  203,  230,  233, 

237,  252 

De  La  Chaumette  v.  Bank  of  Eng- 
land, 5,  6 

Delano  v.  Bennett,  144 
Delespine  v.  Campbell,  159 
Demeritt  v.  Batchelder,  156 
Dempsey  v.  Bush,  215 
Denick  v.  Hubbard,  220,  247,  248 
Denegre  v.  Ham,  229 
Denier  v.  Myers,  249 
Denning  ».  Colt,  50 
Dennis  ».  Rider,  215 
Dennison,  ex  parte,  338,  368 
Dennison  v.  Gibson,  239 
Denny  v.  Dana,  148 

».  Lyon,  215,  240,  3Q8,  317 

v.  Palmer,  258 
Dent  v.  Holbrook.  336 

v.  Wait,  212 

Denton  v.  Jackson,  328,  335,  367 
D'Meza's  Succ.,  9 
Depeau  v.  Washington,  23,  27 
Depuy  v.  Clark,  96 
Derring  v.  Boyle,  207 
Detroit  v.  Weber,  206 
Detroit  Savings  Bank  v.  Zeigler,  204, 

206 

DeVoss  v.  Richmond,  43,  45 
Dewy  v.  Bowman,  425,  431,  442,  443 
DeWitt  v.  Brisbane,  135,  191 
DeWolf  0.  Gardner,  379,  380,  382, 
408,  418,  420 

v.  Johnson,  140,  141 
Dey  v.  Dey,  188 
De  Zeug  v.  Fyfe,  34 
Dias  v.  Bennett,  213 
Dibrell  v.  Dandridge,  215 
Dickinson  v.  Central  Nat.  Bank,  272, 
278,  293 


XXIV 


TABLE  OF  CASES. 


Dickinson  v.  King,  30 

v.  Worthington,  144,  151 
Dickerson  «.  Miner,  245 

«.  Seelye,  392,  383 

t>.  Valpey,  50 
Dickson  «.  Swansea  R.  R.  Co..  432 

9.  Thomas,  346,  349,  350,  359 
Diercks  v.  Kennedy,  189 

t>.  Roberts,  32 
DUlaye  t.  Commercial  Bank,  185, 

187,  196,  436 
Diller  v.  Brubaker,  306 
Dillon  v.  Russell,  239 
Dinsmore  v.  Duncan,  43 
Disbrough  v.  Neilson,  348,  353 
Disbrow  v.  McDonald,  41^ 
Dix  t».  Cobb,  425,  428 

9  Tully,  90,  112 

t>.  Van  Eyck,  140 
Dixueld  v.  Newton,  433 
Dixon  v.  Baldwin,  405 

v.  Dixon,  28,  30 

9.  Vandenburg,  251 
Dob  9.  Halsey,  54,  57 
Dodd  v.  Winn,  238 
Dodge  v.  Bank,  11,  144 

v.  Emerson,  30,  144 

9.  Freeman's  Savings  &  Trust 

Co.,  214 

Dolby  v.  Spaicls,  350.  359 
Dole  v.  Young,  253 
Doll ».  Rizotti,  173 
Dolman  v.  Crane,  140 
Don  ley  t>.  Hays,  159 
Donald  v.  Suckling,  79,  82,  819,  409, 

444 

Donnelly  v.  Ryan,  52 
Donohoe  «.  Gamble,  119 
Donohue  t>.  Woodbury,  228 
Doolittle  v.  Cook,  18 
Door  t>.  Shaw,  98 
Dorlon  t>.  Christie,  243 
Dorrill  v.  Eaton,  79, 181 
Dorsell  v.  Mitchell,  153 
Doss  t>.  Ditmare,  158 
Doty  9.  Bates,  51 


Douglas'  App.,  214 
Douglas  v.  Howland,  261 

9.  Reynolds.  88,  257-259 
Dovey's  App.,  23,  270,  316 
Dowell  v.  Cardwell,  424 
Downey  v.  Thorp,  186 
Downing  v.  Traders  Bank,  221 
Dow  v.  Gould  etc.  Co.,  280 
Dows  v.  Greene,  380,  398,  405 

v.  Kidder,  397,  402 

v.  Nat.  Exchange  Bank,   380- 
382,  400,  404 

v.  Purrin,  393,  403 

v.  Swett,  29, 110 
Drake  v.  Christy,  256 

9.  Mitchell,  109,  110 

v.  White,  86 
Draper  v.  Cowles,  28 

v.  Saxton,  65,  68,  80,  164,  181 
Dresser  «.  R.  R.  Co.,  31,  78 
Driscoll  v.  West  Bradley  Manf.  Co., 
271,  289,  293,  320,  380,  439 
Drysdale  v.  Piggott,  217 
Ducker  v.  Rapp,  240,  241,  247 
Duden  v.  Waitzfelder,  332 
Dudley  v.  Caldwell,  145 

v.  Cooper,  215 

«?.  Elwes,  144 

v.  Miller,  120 
Duke  v.   Cahawba  Nav.  Co.,  265, 

271 

Dumont  v.  Fry,  61,  98 
Duncan  «.  Bank,  212 

v.  Brennan,  62,  97 

9.  Gilbert,  3S,  42,  66,  78,  196 

tn.  Hill,  372 

v.  Hinckley,  291 

9.  Jaudon,  62,  178,  296-298,  302 

9.  Luntley,  309 

«.  Louisville,  144,  162 

».  Mobile  etc.  R.  R.  Co.,  214 

9.  McCullough,  89 

«.  N.  &  S.  W.  Bank,  202,  203, 

253 

Dundas  v.  Sterling,  251 
Dunbrow  v.  McDonald,  383 


TABLE   OF   CASES. 


XXV 


Buncombe  v.  N.  T.  &  H.  &.  N.  R 

R.  Co.,  16-18,  23,  74,  78,  79, 

108,  134, 125,  133 
Dunham  v.  Clogg,  32 

9.  Countryman,  247 
Dunkley  v.  Van  Buren,  154 
Dunlop,  in  re,  292 
Dunn  v.  Weston,  31, 41,  42 
Dunning  t>.  Merrill.  141 
Dunscomb  v.  Banker,  136 
Durant  9.  Bart,  356 

v.  Einstein,  328,  342 
Durham  v.  Price,  258 
Durrell  v.  Wendell,  250 
Dutchess  Ins.  Co.  v.  Hatchfleld,  75, 

76 

Dutchman  9.  Tooth,  260 
Dutton  v.  Connecticut  Bank,  273, 

278,  295 
9.  Ives,  151,  161 
Duty  v.  Graham,  157 
Duvall  v.  Farmers'  Bank,  258 
Dyer  v.  Pearson,  437 
Dykers  v.  Allen,  331,  338 
Dyott's  est.,  in  re,  130 
Earl  Vane  v.  Rigden,  301 
East  India  Co.  v.  Donald,  142 
East  Lincoln  v.  Davenport,  48 
Eastman  9.  Foster,  156, 159,  217,  231 
East  Oakland  v.  Skinner,  44 
Easton  v.  Clark,  408,  410 

v.  Hasty,  212 
Eaton  v.  Cook,  405 
Edger  v.  Emerson,  213 
Edgerton  v.  Young,  144,  170 
Edgington  v.  Hefner,  153,  154 
Edmonston  v.  Drake,  259 
Edmondson  v.  McLeod,  102,  129,133 
Edwards  v.  Martin,  426 
v.  Skining,  137 
V.  Thomas,  54 
Egberts  v.  Woods,  50 
Eggershall  v.  Ruggles,  228 
Eichelberger  v.  Murdock,  279 
Elder  v.  Rouse,  104 
Eldred  v.  Hazlett,  433 


Ellerhorst,  in  re,  221 
Ellett  v.  Butt,  144 
Elliott  v.  Russell,  374 
Ellis  v.  Jones,  405 

9.  Kreutzinger,  426,  446 

v.  Lamme,  158 

9.  Laurie,  158 

v.  Roscoe,  159 

v.  Willard,  392 
Ellsworth  v.  Harmon,  253 

v.  Lockwood,  215 
Elston  v.  Deacon,  54,  56,  58 
Elting  v.  Vanderlyn,  27 
Elwood  v.  Diefendorf,  212,  228,  230, 

242,  243 
Ely  9.  Guest,  293 

9.  Ely,  154 

9.  Scofield,  193 
Emanucl  v.  White,  28 
Emerine  v.  O'Brien,  243,  244 
Emery's  Sons  v.  Irving  Nat.  Bank, 

263,  373,  379,  380-382 
Emerson  v.  Harmon,  51 
Emicks  v.  Powell,  237 
Emis  v.  Widowson,  242 
Emly  v.  Lye,  52 
Emory  v.  Keighan,  156,  157 
Empire  City  Bank,  in  re,  282,  283 
Empire  Ins.  Co.  9.  Stewart,  180 
Enders  9.  Brine,  213 
English  v.  Carney,  159 
Erickson  v.  Rafferty,  154 
Erie  &  P.  Dispatch  Co.  0.  Compress 

Co.,  417,  419 
Ernest  v.  Nicholls,  52 
Erskine  v.  Lowenstein,  286 
Erwin  t>.  Schaffer,  27,  33 
Essex  Co.  Bank  9.  Russell,  39 
Esser  v.  Linderman,  306,  335 
Est.  of  Busch,  241,  331 
Etheridge  v.  Parker,  184,  186 

v.  Vernoy,  424 

Eubanks  v.  Leveridge,  154,  156 
European  Bank,  in  re,  4,  61,  62 
Evans  t>.  Bell,  261 

9.  Bremridge,  245,  250 


XXVI 


TABLE  OF   CASES. 


Evans  t.  Potter,  407 

t>.  Wain,  363,  370 

t>.  Wells,  55,  56 

«.  Wood,  268,  371 
Evansville  etc.  R.  R,  Co.  c.  Erwin, 

401 

Everett  v.  Strong,  50 
Everly  c.  Rice,  240 
Everingham  t>.  Emsworth,  54 

«.  Meighan,  346,  349.  359 
Evertson  n.  National  Bank,  8,  43,  47, 

48 

Ewell  v.  Daggs,  140 
Exchange  Bank  v.  McLoon,  424 
Exeter  Bank  v.  Jordan.  94,  96, 116 
Eyre  v.  Everett,  241 
Factor's  Ins.  Co.  «.  Drydock,  276 
Fair  c.  Howard,  23 
Fairchild  v.  Brown,  95 
Faith  v.  Richmond ,  52 
Fales  t>.  Mayberry,  152 
Falkney  v.  Reynous,  357 
Fallen  v.  Railroad  Co.,  340 
Farebrother  v.  Woodhouse,  212 
Fareira  t>.  Gabell,  849,  350,  351,  359 
Farmer  v.  Russell,  357 
Fanner's  Nat.  Bank  v.  Atkinson,  378, 
403 

t>.  Champlain  Transp.  Co.,  804 

t>.  Bearing,  139 

t>.  Erie  R.  R,  Co.,  390,  400 

t>.  Fletcher,  161, 165 

t>.  Ilazeltine,  873,  875,  378,  898, 
403 

r.  lelehart,  293 

v.  King,  62 

c.  Lang,  260 

t.  Logan,  263,  373,  375,  379,  380, 
889,  395,  401,  403 

t>.  Stover,  203 

«.  Van  Metier,  256 

c.  Wilson,  295 
Farmer's  Ins.  Co.  t>.  Wilkinson,  104, 

109 

Farmer's  Loan  etc.  Co.  t».  Clarkin, 
180 


Farnsworth  v.  Coots,  247,  250 

Farquharson  v.  Flower,  98 

Farr  v.  Stevens,  80, 109 

Farrar  v.  Walker,  283 

Farrell  v.  Lovett,  57 

Farwell,  L.  J.  The,  387,  388 

Farwell  v.  Importer's    Bank,  1,  16, 

65,  90,  92,  93,  98,  99,  129 
Fatman  v.  Lobach,  270,  330 
Faulkner  v.  Hill,  91 
Fawcett  v.  Kennedy,  213 
Fay  v.  Gray,  252,  323 
Fearon  v.  Bowers,  395 
Feldman  v.  Beire,  109 
Fellows  V.  Powell,  388,  401 
Fellows  v.  Prentice,  243,  247 
Felt  v.  Heye,  320,  321,  824,  346 
Feltz  v.  Walker,  191,  422 
Fenby  v.  Pritchard,  17,  23 
Fennell  v.  McGowan.  79,  83, 112 
Feuouille  v.  Hamilton,  23,  27 
Fenton  v.  Machine  Co.,  312 
Ferdon  v.  Miller,  196 

v.  Smith,  16 

Ferguson  v.  Union  Furnace  Co.,  127 
Ferry  v.  Hickman,  23 
Fessler  v.  Hickernell,  215 
Fetrow  v.  Wiseman,  207 
Fickett,  in  re,  217 
Field  v.  Farrington,  328,  864 

v.  Holland,  219 

t>.  Mayor,  430 

t>.  Megaw,  423,  424,  446 

t>.  Schieffelin,  73,  298,  301 
Fieldens  v.  Lahens,  55,  57,  251 
Fielding  0.  Waterhouse,  212,  215, 

216,  231 

Finney's  App.,  265,  269,  293 
Fireman's  Ins.  Co.  v.  Wilkinson,  242 
First  Nat.  Bank  v.  Bates,  141,  412- 
414-416 

f>.  Beard,  18 

t>.  Bentley,  27 

v.  Breeze,  55,  57 

c.  Bryce,  263,  409,  412,  419 

t>.  Carpenter,  253 


TABLE   OF   CASES. 


XXV11 


First  Nat.  Bank  0.  Cony,  187,  190 

v.  Dearborn,  379 

v.  Fourth  Nat.  Bank,  257 

0.  Fowler,  27,  32,  65,  77,  205 

0.  Grant,  41,  42 

v.  Guarlinghouse,  139 

0.  Haire,  64,  180 

D.  Hartford  Ins.  Co.,  269,  290 

«.  Kelly,  379-380,  580 

v.  Lamb,  139 

v.  Leavitt,  243 

0.  Nelson,  407,  410.  419 

0.  Northern  Ry.  Co.,  263,  394 

0.  Ocean  Nat.  Bank,  63 

v.  Pierce,  247 

v.  Shaw,  403 

v.  Stewart,  296,  304 

v.  Southwick,  39 

v.  Tabor,  47 

v.  Whitman,  248 

v.  Wood,  255 
Fish  0.  DeWolf,  135 

v.  Kempton,  298 
Fischer  0.  Meyer,  254 
Fisher  v.  Biadford,  127 

v.  Bridge,  349 

v.  Brown,  178,  298 

0.  Essex  Bank,  273,  293,  295 

0.  Fisher,  18,  31,  38,  42,  65,  66, 
78,  92,  108,  335 

v.  Knox,  147 

v.  Marvin,  28 

v.  Mossman,  156 

v.  Seligman,  282,  285 
Fiske  v.  Carr,  273 
Fitch  v.  Jones,  7 

Fitchburg  Saving's  Bank  v.  Rice,  244 
Fitzgerald  v.  Blocker,  120 
Fitzroy  v.  Gwillim,  135 
Flagg  v.  Munger,  90 
Fleckner  v.  Bank  of  U.  S.,  183 
Fleeman  v.  McKean,  397 
Fletcher  v.  Case,  23 

».  Dickinson,  117,  120,  121,  129, 

181,  175,  331 
Flower  v.  Elwood,  147 


Fluker  v.  Bui  lard,  9 
Flynn  v.  Mudd,  247 
Foley  v.  Rose,  144,  158,  175 

v.  Smith,  5,  69,  95,  176 
Follett  v.  Steele,  30 
Foot  v.  Brown,  88,  90 

v.  Savin,  57 

Forbes  0.  Boston  &  Lowell  R.  R.  Co., 
380,  383,  394,  395,  401 

v.  Jackson,  212 

0.  Rowe,  253,  261,  263 
Ford  v,  Russell,  301 

0.  Thornton,  61 
Fordick  0.  Barr,  147 
Forrey  0.  Baxter,  30 
Fort  Scott  0.  Schulenberg,  157 
Foster  0.  Beals,  192 

0.  Blackstone,  428 

0.  Fox,  144 

0.  Hall,  52 

0.  Mackinnon,  66 

0.  Mackreth.  50 

0.  Strong,  144,  17l 

0.  Trustees,  215 
Fourth  Nat.  Bank  0.  City  Bank,  61 

0.  Compress  Co.,  413,  415,  417 
Fowle  0.  Ward,  298,  299,  323,  336, 

338,  340 
Fowler  0.  Brantley,  69,  76,  95 

0.  Gilman,  409 

0.  Ludwig,  29 
Fox  0.  Blossom,  156 
Fraker  0.  Reeve,  117,  118 
France  0.  Clark,  1,  8n,  81,  119,  263, 

268,  319, 328,  333,  340 
Franchot  0.  Leach,  422 
Francia  0.  Joseph,  24,  71 
Frank  0.  Littlefield,  32 
Franklin  0.  Twogood,  150 
Franklin  Bank  v.  Commercial  Bank, 

282,  304 

Frankfort  Bank  0.  Johnson,  312 
Fraser  0.  Charleston,  263,  265,  269, 

270,  272,  293,  340 
Frazer  0.  Jordan,  248 
Frazier  0  Gaines,  66 


XXV  111 


TABLE   OF  CASES. 


Frazier  t.  McQueen,  229 

Freeholders  v.  Thomas,  29,  109 

Freeman  v.  Cooke,  440 

Freeman's  Nat.  Bank  v.  Savery,  57 

French  v.  Gibbs,  132 

French  v.  Haskins,  158 

Freund  v.  Importer's  Bank,  34,  35, 

39.  428 

Frink  v.  Green,  250 
Frith  0.  Cartlaud,  02,  403 
Frost  r.  Clarkson,  327,  348,  369 
Frou's  Est.,  215 
Fuentis  v.  Montis,  81.  408 
Fuller  v,  Hapgood,  233 

v.  Toinlinson,  241 
Fullerton  v.  Sturges,  66 
Fulford  v.  Johnson,  29 
Fulton  v.  Fulton,  175 

0.  Matthews,  241 
Furnis  v.  Durgin,  222,  224 
Furnold  v.  Bauk,  213 
Frye  v,  Barker,  255 
Fryer  v.  Rishell,  305 
Gabarron  v.  Kreft,  398,  537 
Galbert  v.  Schwartz,  144,  161 
Gage  v.  Lewis,  222,  224,  261 
Gahn  v.  Niemcewicz,  242,  243 
Gainsforth  v.  Griffith,  221 
Gaither  v.  Farmer's  &  Mech.  Bank, 

135,  140 

Galbraith  v.  Fullerton,  247.  248 
Gallagher  v.  Nichols,  253 
Gallagher's  exec.  v.  Roberts,  29 
Galway  v.  Fullerton,  195 
Gardner  v.  Gager,  18,  65,  68 

v.  Maxwell,  42 

0.  Suydam,  413 

0.  Watson,  247,  248 
Garland  v.  Jocomb,  54 
Garlick  v.  James,  93,  96 
Garner  v.  Gay,  173 
Garth  v.  Cooper,  137 
Garton  v.  Union   City  Nat.  Bank 

92 

Garvin  c.  Wiswell,  43 
Gary  v.  Cannon,  211 


Gass  0.  Hampton,  296,  298,  300,  316, 

319,  320,  322,  324 
Gaston  v.  American  Bunk,  298 
Gates  v.  McKee,  204 
Gaty  v.  Holliday,  280 
Gansesoort  v.  Williams,  54,  58 
Gay  t.  Ide,  144 

0.  Moss,  425 

G.  &  S.  W.  R.  R.  Co.  v.  Stahl,  129 
Gelpecke  v.  City  of  Dubuque,  43,  47 
Gebhart  0.  Sorrels,  26 
Gen.  Ass.  Co.,  in  re,  61,  6 
General  Credit  &  Discount  Co.  0. 
Bank,  329 

0.  Glegg.  120 
Genet  0.  Rowland,  334 
George  v.  Oxford,  48 

0.  Tait,  422 

0.  Woodward,  158,  173, 175, 179 
Gerber  v.  Sharp,  158.  213 
German  Mining  Go's.  Case,  205 
German  Union  Bldg,  Assn.  0.  Send- 

meyer,  267.  271,  272,  293 
Gerson  v.  Hamilton,  259 
Gette  0.  Buisse,  251 
Geyer  0.  Ins.  Co.  289,  290 
Gibbs  0.  Cannon.  88-89,  261 

0.  Menard,  223,  225 
Gibson  0.  Cooke,  424 

0.  Chillicothe  Bank,  412, 413,  421 

t>.  Connor,  18 

0.  Martin,  175,  177,  181 

0.  Stevens,  373,  379,   380.  381, 
412,  413,  414 

0.  Tobey,  88 

Gifford,  ex  parte,  236,  250 
GifTord  v.  Holmes.  132 
Gilbert  v.  Gimgar.  346,  348,  3:54,  336 

0.  Manchester  Iron  Co.,  271 
Giles  r.  Baremore.  156 

0.  Bradley,  348 
Gill  0.  Downing,  427 
Gillin.;ham  0.  Boardman,  261 
Gilmati  r.  Illinois  Telegraph  Co.,  154 

0.  Moody,  225 
Gill  0.  Continental  Gas  Co.,  272.  273 


TABLE   OF    CASES. 


XXIX 


Gill  v.  Cubitt,  75 

Gillet  v.  Peppercome,  332 

Gilpia  v.  Howell,  103,  287,  306,  369 

Ginnell,  in  re,  329 

Girard  Life  Ins.  Co.  v.  Marr,  14,  15 

Glass  v.  Fallen,  213,  214 

Glazier  v.  Douglass,  220,  240 

Gleadon  v.  Tinker,  50 

Glendenning,  ex  parte,  250 

Globe  Insurance  Co.  v.  Carson,  242, 

247 
Glyn,  Mills  &  Co.  v.  E.  &.  W.  India 

Docks   Co.,   263,   373,  375, 

380,  382,  393,  394,  396 
Gold  Mining  Co.  v.  Nat.  Banking 

Co.,  64 
Golding,  ex  parte,  1,  54,  373,  397, 

405 

Goldshede  v.  Swan,  32 
Goldsmith  v.  Trustees,  125 
Gommersal,  in  re,  91 
Good  v.  Cheesman,  228 
Goodfellow  v.  Smith,  166 

v.  Stillwell,  151,  152,  162 
Goodale    v.  Richardson,    106,   115, 

116 

Goodheart  v.  Johnson,  223 
Goodloe  v.  Clay,  159,  231 
Goodnow  0.  Hill,  207 
Goodman  v.  Litaker,  203,  220 

v.  Simonds,  7,  8,  18,  19,  21,  23, 

25,  27,  32,  65,  66,  75,  76 
Goodrich  v.  Tracy,  243 
Goodspeed  0.  Bank,  312 
Goodwin  0.  American  Nat.  Bank, 

296,  301 
0.  Conklier,  27 
v.  Robarts,  65,  432,  436 
Gordon  0.  Ellis,  50 
Gorgier  v.  Mieville,  8,  22,  65,  71 
Goring  v.  Edmonds,  241 
Gormdie  v.  Northampton  Co.,  64 
Gosling  v.  Griffin,  112 
Goss  v.  Emerson,  4,  79,  96 
Gossin  v.  Brown,  217 
Gould  v.  Central  Trust  Co.,  99,  326 


Gould  v.  Farmer's  L.  &  T.  Co..  6VT, 
79,  80,  81,  83,  99,  279,  321, 
322,  324,  326,  328 

v.  Hayden,  229 

v.  Robson,  243 

v.  Segel,  28 
Graff  v.  Hitchman,  52 
Grafton  Bank  v.  Foster,  144 

0.  Kent,  203 
Graham  v.  Johnson,  422 

v.  Newman,  144 
Grandin  v.  Le  Roy,  34 
Granite  Bank  v.  Richardson,  335 
Grant,  ex  parte,  370 

v.  Burr,  156 

v.  Kidwcll,  23,  25,  42 

0.  Norway,  386,  388,  390,  399 

0.  Taylor,  62 

Grapengether  v.  Fejervary,  144,  158 
Grassley  v.  Rein  back,  170 
Grattan  v.  Wiggins,  144 
Graves  0.  Johnson,  203 
Gray0.  Agnew,  407,  411 

0.  Bennett,  139 

0.  Brown,  140, 247 

0.  Portland  Bank,  222 

0.  Ward,  50,  63 
Gray's  Admr.  0.  Bank  of  Kentucky 

189 

Green's  Case,  in  re,  359 
Green  0.  Chappell,  144 

0.  Deakin,  54 

0.  Hart,  144 

0.  Kemp,  140 

0.  Kennedy,  28 

0.  Key,  214 

0.  Millbank,  212,  231 

0.  Tanner,  52 

v.  Wyman,  250 
Greene  0.  Bates,  242 

0.  London  Omnibus  Co.,  313 

0.  Warwich,  185,  196 
Greer  0.  Bush,  255 
Gregg  0.  Fisher,  50,  51 
Gregory  0.  Murrell,  233 

0.  Savage,  144,  147,  152 


XXX 


TABLE   OF   CASES. 


Gregory  t>.  Wattowa,  349 

r.  Wendell,  348.  349,  351, 336,  562 
Greeley  v.  Dow,  247 
Greening  v.  Patten,  342 
Greenbaum  v.  Megibben,  412,  420 
Greeneaux  v.  Wheeler,  18 
Greenslade  c   Dowpr.  50 
Grcci.luaf  v.  Luring.  250 
Greenstock  ».  Rozenback,  428 
Greenwell  v.  Hayden,  15,  23,  43,  46, 

65,  78,  109 

Greenwood  v.  Tyler,  98 
Grider  v.  Payne,  213 
Grier  v.  Hood,  50 
Griffith  v.  Dwight,  433 
Griffin  v.  Kelleher,  238 
Griffith  v.  Robertson,  261 
Griffiths  v.  Owens,  22 
Griggsby  v.  Hair,  160 
Grimes  v.  Kiraball,  433 
Gring's  App.,  214,  216 
Grissell  v.  Bristowe,  263, 268,  363, 371 
Grissom  ».  Fite.  32 
Grizewood  v.  Elaine,  348,  350 
Griswold  ».  Davis,  16 

v.  Haven,  312,  390 

«.  Jackson,  239 

v.  Seligman,  282.  284 
Grocer's  Bank  v.  Penfield,  81,  34,  39, 

43 

Grosvenor  v.  Atlantic  Fire  Ins.  Co. 
426 

«.  Phillips,  379 

Grovanovich  v.  Citizen's  Bank,  18 
Grove  v.  Roberts,  114 
Grover  v.  Hoppock,  220,  243 
Gruman  v.  Smith,  306,  322,  331,  334, 

837,  365 

Guaton  v.  Matthews,  173 
Guerriero  v.  Peile,  408 
Gunn  v.  Bolckow,  433 
Gumery  «.  Olmstead,  204 
Guilbert  v.  Guignon,  402 
Guild  v.  Butler,  212, 228,  239 
Gunnel  v.  McCue,  224 
Gurney,  in  re,  421 


Gurney  v.  Behrend,  263,   373,  375, 

379,  397,  398. 
Gwin  v.  Moore,  241 
Gyger  v.  New  Orleans.  47 
Hackenstein  p.  Love,  140 
Hackett  v.  Ottawa.  8,  43 
Hague  v.  Dandeson,  61 
Haille  v.  Smith,  379 
Haines  v.  Forsham,  302 
Haldeman  v.  Bank  of  Middleton,  51, 

56 
Hale  v.  Rider,  102,  104,  108, 129, 153 

v.  Walker,  282,  283 
Hall,  ex  parte,  424 

v.  Denkla,  156 

v.  Featherstone,  7 

t>.  Hoxsey,  209,  213.  233 

«.  Mutual  Ins.  Co.,  180 

v.  Robinson,  230,  231,  233 
Halliday  v.  Hamilton,  387 

v.  Hart,  247,  248 

v.  Holgate,  339,  342,  344,  408 
Halsey  v.  Warden,  384.  405 
Hambleton  v.  Cent.  Ohio  Ry.  Co., 

308 
Hamilton  v.  Lubukee,  144 

v.  Summers,  51 

v.  State  Bank,  334 
Hammatt  v.  Wyman,  215 
Hammer  v.  Kaufman,  206 
Hammond  v.  Gilraore,  261 

v.  Wyman,  233 
Hampton  v.  Levy,  241 
Hancock's  App.,  158,  159 
Hancock  v.  Franklin  Ins.  Co,,  90,  91, 

97,  100,  120,  128,  181 
Hanks  v.  Drake,  334 
Hanna  v.  Holton,  90,  114 
Hannah  v.  Guy,  229 

t>.  Wilson,  156 
Harbeck  v.  Vanderbilt,  193,  214,  216, 

233 

Hardin  t>.  Eames,  212 
Harding  v.  Tifft,  219 
Hardy  v.  Jaudon,  327,  369 

e.  Norton,  32 


TABLE   OF   CASES. 


XXXI 


Hargreaves  D.  Hutckinson,  137 
Harlati  0.  Sweney,  212 
Harper  0.  Fairley,  100 

v.  Goodsell,  60 

Harrington  0.  Dow,  31,  41,  43 
Harris  0.  Birch,  404 

v.  Bradley,  413 

v.  Brooks,  203 

v.  Clapp,  221 

v.  Harlan,  158 

0.  Newell,  220 

v.  Pratt,  405 

v.  Rickett,  16 

v.  Smith,  384 

0.  Tunbridge,  S55,  363,  368 
Harrison  v.  Hamell,  135,  140 

0.  Hannah,  141 

v.  Sterry,  50 
Hart  v.  Folger,  224 

v.  Frontino  etc.  Co.,  310 

v.  Hudson,  243 

0.  Ten  Eyck,  132 
Harter  v.  Coleman,  422 
Hartga  v.  Bank  of  England,  309 
Hartley  v,  Russell,  127,  130 
Hartman  v.  Duval,  23 
Hartop  v.  Hoare,  407 
Hartshorn  v.  Day,  422 
Harvey  0.  Towers,  53 
Hasbrouck  v.  Vandervoort,  132,  269, 

280,  340 

Haselfoot's  est.,  in  re,  441 
Haskell  v.  Board  man,  258 

v.  Brown,  150, 170 

v.  Lamber,  3 
Haskins  0.  Kelly,  448 
Hassell  v.  Long,  204 
Hatch  0.  Attleborough,  206 

0.  Douglass,  306,  348,  332,  370 

0.  Langdon,  26 

Hathaway  v.  Fall  River  Nat.  Bank, 
97,  323,  340,  342 

0.  Haynes,  379,  382,  402 
Hauck  0.  Craighead,  251 
Hausand  0.  Robinson,  106 
Hauser  0.  King,  217 


Haven  0.  Hathaway,  100 

0.  Pippin,  254 

0.  Railroad  Co.,  8,  147 
Hawke  0.  Snydacker,  144 
Hawks  0.  Hinchliff,  79,  87,  96,  108 
Hawkins  0.  Bourne,  50 

0.  Hawkins,  394 

0.  Matly,  268 
Hawtayne  0.  Bourne,  52 
Hayes  0.  Frey,  156 

0.  Lewis,  144 

0.  Riddle,  11,  79 

v.  Ward,  85,  94,  212,  215,  220, 
239 

0.  Wells,  242 
Hayden  0.  Snow,  143,  144,  149, 161 

0.  Weldon,  253 
Hayward  0.  French,  51,  56 

0.  Nat.  Bank,  240,  343 
Hazard  0.  Fiske,  98,  415 
Headlee  0.  Jones,  247 
Hearne  0.  Keath,  228 
Heath  v.  Erie  Ry.  Co.,  295 

0.  Griswold,  283,  285,  288,  345 

0.  Mahone,  305 

0.  Sansom,  56 

0.  Silverthorne  etc.  Co.,  28,  143, 

150,  161,  264,  283 
Heermans  0.  Ellsworth,  192 
Heffron  0.  Hanaford,  57 
Heffer  0.  Covington,  44 
Heidenheimer  0.  Meyer,  260 
Heilbut  0.  Nevill,  54,  56 
Hellanesi'.  Abercrombie,  221,223,228 
Heller  0.  Meis,  171 
Helms  0.  Wayne  Agricultural   So- 
ciety, 205 

Hemery  0.  Marksberry,  248 
Hendershot  0.  Pring,  156 
Henderson  0.  Case,  48,  69,  95 

0.  Comptoir,  375,  381 

0.  Herrod,  144 

0.  Palmer,  359 

0.  Pilgrim,  147 

Hendrie  0.  Berkowitz,  55,  57 
Henry  v.  Davis,  175, 183 


XXXll 


TABLE   OF   CASES. 


Henry  v.  Eppinger,  153 

t?.  Maroni,  408 

v.  Philadelphia  Warehouse  Co., 

379 ,  398 

Heppin  t.  Cooper,  204 
Heritage  v.  Hedges,  431 

t>.  Paine.  371 
Herman  v.  Maxwell.  280 
Hern  v.  Nichols,  163,  390 
Herr  ».  Zarker,  413 
Herrick  v  Attwood,  436  , 

v.  Borst,  220 

Hermandez  v.  Stillwell.  253 
Herrington  v.  McCullum,  158 
Hestonville  R.  R.  Co.  v.  Shields,  332 
Hewer  v.  Prunyn,  156 
Heyman  v.  Dubois,  98 
Heywood  v.  Watson,  17,  22,  32 
Hiatt  v.  Griswold,  323 
Hibbert  v.  Carter,  374 
Hibblewhite  v.  McMorine,  348 
Hickman  v.  Hunkle,  54 

0.  Renieking,  54 
Hickox  v.  Farmer's  Bank,  220 
Higgs  v.  Assam  Tea  Co.,  43,  49 
Higgins,  ex  parte,  202 
High  v.  Cox,  244 
Hill  v.  Beebe,  109 

c.  Bostwick,  243 

v.  Edwards,  144 

v.  Epley,  433 

0.  Martin,  258 

0.  Morse,  250 

0.  Mausen,  215 

v.  Newichawanick,  280 

0.  Pine  River  Bank,  272 

0.  Simpson,  302 
Hillary  v.  Waller.  156 
Hillegas  v.  Stephenson,  256 
Hilton  v.  Waring,  90,  113,  128 
Hilyard  v.  South  Sea  Co.,  308 
Hincklcy  v.  Kreitz,  215,  230,  233 
Hinds  v.  Ingham,  248 
Hinely  v.  Margaritz,  207 
Hines  ».  Keller,  233 
Hinney  0.  Phillips,  305 


Hippins,  ex  parte,  203 
Hobart  v.  Curtis,  381 
Hobart  «.  Penny,  57 
Hobson  v.  Roles,  144 
Hodges  v.  Harris,  50 

v.  Planter's  Bank,  302 
Hodgkinson  v.  Kelly,  371 
Hodgson  v.  Bell,  222 
Hodgson  v.  Shaw,  212,  213,  215,  219 
Hoffley  v.  Maire,  144 
Hoffman  v.  Noble,  414,  417 
Hoff's  App.,  210 
Hogarth  v.  Latham,  56 
Hogg  ®.  Shene,  56 
Holbrook  v.  Bassett,  16 

v.  New  Jersy  Zinc  Works,  271, 
273,  275,  314,  320,  322 

v.  Wright,  379 
Holdsworth,  ex  parte,  50 
Holl  v.  Hadley,  241 
Holland  <o.  Turner,  258 
Hollis  t>.  Ins.  Co.,  193,  448 
Holmes,  ex  parte,  304 

v.  Bailey,  262,  373,  380 

v.  Day,  215,  237 

0.  German  Security  Bank,  373, 
380,  382 

0.  Rhodes,  222 

0.  Smith,  23,  28 

v.  Winchester,  278 
Home  Savings  Bank  v.  Traube,  204, 

206 

Holt  v.  Body,  203,  240 
Holtz  v.  Belden,  184,  189 
Holyoke  Hank  v.  Burham,  282 
Holzworth  v.  Koch,  27 
Homer  v.  Savings  Bank,  254 
Hopkins  v.  Beebe.  423 
Hood  v.  Leland,  230 
Hooker  v.  Gooding,  261 

0.  Knab,  359 
Hoover  0.  Epkr,  214 
Hoppin  v.  BulTum,  283 

0.  Quinn,  35 
Hore  v.  Beecher,  142 
Horton  v.  Morgan,  369 


TABLE   OF   CASES. 


XXX111 


Horn  v.  Baker,  413,  420 

v.  Coke,  138 

0.  Cole,  436 

Hornblower  0.  Proud,  27 
Home  v.  Bodwell,  239 
Homing's  App.,  210 
Horton  v.  Bond,  212 

v.  Morgan,  306 

0.  Westminster  Comm.,  433 
Hortsinan  0.  Gerker,  186 
Hosea  v.  Rowley,  247 
Hosmer  v.  Campbell,  144,  147,  178 
Hoss  v.  Williams,  278,  290 
Hosteller  v.  Alexander,  144,  172 
Hotchkiss  v.  Nat.  Banks,  8,  16,  65, 

75,  78 
Hough  v.  Bailey,  156 

v.  Etna  Life  Ins.  Co.,  214,  220, 

243 
Houser  ».  Houser,  87,  90  , 

v.  Lane,  128 
Howard  v.  Davis,  328,  364 

v.  Entreken,  144 

v.  Gardner,  114 

0.  Ross,  147 

v.  Tucker,  392 

Nat.  Bank  v.  Loomis,  64,  144, 

180 
Howell  v.  Hall,  184,  189 

v.  James,  14 

0.  Jones,  247 
Rowland  v.  Coffin,  30 
Howry  v.  Eff  enger,  161 
Hoyt  v.  Martense,  183 

0.  Thompson,  44 

Hubbard  v.  Gurney,  203,  242,  243, 
247 

v.  Mo.  Valley  R.  R.  Co.,  157 
Hubbell  v.  Blakeslee,  195 

v.  Carpenter,  250,  339 

v.  Drexel,  264,  327,  328,  369 
Hubbersty  v.  Ward,  388 
Huck  0.  Hager,  253 
Hudelson  v.  Armstrong,  257 
Hudson  etc.  Transfer  Co.  v.  Nat. 
Bank,  254 
C 


Huff  v.  Wagner,  92 

Huffard  «.  Gottberg,  158 

Hughes  v.  Edwards,  156 

Hallett  v.  Indian  Mines  Co.,  228,  342 

Hull  v.  Jackson,  423 

v.  Hoxsey,  240 

v.  Sherwood,  233 
Humphrey  v.  Binson,  144 

0.  Morton,  158,  159 
Hunnewell  v.  Lane,  278 
Hunsaker  v.  Sturgis,  338 
Hunt  0.  Adams,  203 

v.  Brigham,  255 

0.  Chapin,  50 

&.  Mississippi    R.  R.   Co.,  386, 
388,  392,  401 

0,  Mortimer,  16 

0.  Nevers,  4,  100,  120,  128 

0.  Purdy,  220 

0.  Rousmainer,  272 
Hunter  0.  Keller,  213 

0.  Moul,  29,  88, 105,  109, 113,261 

0.  U.  S.,  213 

Hunterdon  0.  Nassau  Bank,  271 
Huntington  etc.  Co.  0.  English,  337 

0.  Smith,  144 
Hurd  0.  Little,  243 

0.  Spencer,  239 
Hurt  0.  Wilson,  144,  161 
Hurst  0.  Coley,  11, 12,  181,  182 
Hutchins  0.  Olcutt,  30,  109 

0.  State  Bank,  147,  301 
Hutchinson  v.  Crane,  144 

0.  Gill,  186,  189 

0.  Smith,  53 

0.  Swartsweller,  29,  109 
Hutton  0.  Crittwell,  16 
Hyatt  0.  Argenti,  334 
Hyde  0.  Woods,  446 
Idaho,  the,  387 
Imperial  Land  Co.,  in  re,  49 
Imperial  Bank  0.  Dock  Co.,  433 
Ingalls  0.  Morgan,  239 
Ingraham  0.  Disborough,  185,  422 
Inning  v.  Fielder,  220 
Insurance  Co.,  v.  Bruce,  8 


XXXIV 


TABLE  OF  CASES. 


Insurance  Co.  0.  Eldridge,  151 

0.  Goodfellow,  273 

0.  Insurance  Co.,  312 

v.  Kiger,  407,  409,  412,  413 

0.  Smith,  192 

0.  Wright,  261 

International  Ins.  Co.,  in  re,  98 
International  Bank  v.  Barber,  27 

0.  Bowen,  170 

0.  German  Bank,  425.  436,  447 

0.  Jenkins,  132,  143,  175 
Iowa  College  v.  Hill,  23 
Ipswich  Manfg.  Co.  v.  Story.  154,  156 
Irick  0.  Black,  211,  212,  223 
Irish  v.  Sharp,  422 
Irving,  in  re,  423 
Irwin  v.  Withers,  47 
Isaac  v.  Clark,  280 
Isett  0.  Lucas,  158,  433 
Ives  0.  Farmer's  Bank,  32 
Jackson  0.  Blodgett,  144 

0.  Bronson,  144 

0.  First  Nat.  Bank,  38,  66,  78 

0.  Foote,  260,  346,  348,  356-358 

0.  Railroad  Co.,  47 

0.  Sackett,  153 

0.  Willard,  107,  144,  195 
Jacobs,  ex  parte,  106 
Jacobson  v.  Dodd,  196 
Jaffray  v.  Cornish,  109 
James'  App ,  97,  441 
James  v.  Corey,  192 

0.  Johnson,  147 

0.  Morey,  147,  185 

0.  Pike,  276 

0.  Smith,  161 
Jaques  0.  Marquand,  52,  53 

v.  Fackney,  212,  213 
Jarvis  0.  Rogers,  80,  81,  82,  84,  97, 
265,  319 

0.  Woodruff,  156 
Jasper  County  0.  Tavis,  422 
Jaudon  0.  Nat.  City  Bank,  296,  297, 

298,  301 

Jenkins  0.  Schwab,  23 
Jenkyns  0.  Brown,  379,  400 


Jenneiy  v.  Olmsted,  206 
Jcnness  v.  Bean,  4.  23,  87,  164 
Jennison  v.  Hafford,  27 

0.  Parker,  88,  90 

0.  Stafford,  247 
Jermyn  0.  Mofflt,  424 
Jerome  v.  McCarter,  8,  16.  91,  120, 

124,  125,  278 
Jessell  v.  Bath,  386.  388 
Jessopp  0.  Lutwyche,  357 
Jester  v.  Sterling,  247 
Jesup  0.  Bank,  92 

0.  City  of  Racine,  124 
Jewan  v.  Whitworth,  384,  408 
Jewett  v.  Warren,  327 
John  0.  Jones,  232 

0.  Riordon,  207-210 
Johnson,  v.  Barney,  5 

0.  Belden,  215 

0.  Blasdell,  66 

0.  Brown,  145,  159 

0.  Bush,  191 

0.  Candage,  159 

0.  Carpenter,  144,  145, 147,  172, 
19>,  194 

0.  Crichton,  54 

0.  Cornett,  144 

0.  Harvey,  252 

v.  Hart,  144,  163 

0.  Henry,  140 

0.  Lewis,  154 

0.  Stark  County,  44,  47,  48 

0.  Sherman,  144 

0.  Stear,  82,  344,  409 

0.  Underbill  271,  282,  285 

0.  Watson,  154 

Johnson's  Adrar.  0.  Vaughan,  233 
Johnston  0.  Dexter,  276 

0.  Houston,  154 

0.  Kimball,  204,  206 

0.  Laflin,  263,  265,  269,  271,  274, 
304 

Harvester  Co.  0.  McLean,  60 

0.  Renton,  308 

Joliet  Iron  Co.  0.  Scioto  etc.  Co.,  87, 
117,  120 


TABLE  OP  CASES. 


XXXV 


Jones  v.  Benedict,  97 

v.  Booth,  54 

v.  Broadhurst,  214 

v.  Davids,  215 

t>.  Esler,  186 

0.  Fincher,  212,  213,  215 

«.  Guaranty  etc.  Co.  14,  144 

0.  Hawkins,  90,  93 

0.  Heffert,  42 

v.  Hicks,  88,  91, 114 

0.  Johnson,  192 

D.  Merchant's  Bank,  115,  133 

v.  Nat.  Bldg.  Assn.,  205 

v.  Portsmouth  Ry.  Co.,  87,  286 

v.  Quinnipiack  Bank,  79,  254 

D.  Shelby ville  Ins.  Co.,  32 

«.  Smith,  151, 193 

0.  Trimble,  228 
Jordan,  in  re,  53 
Joseph  Grant,  the,  386 
Joseph  v.  Nat.  Bank,  32,  66 
Joseph  Township  v.  Rogers,  42 
Joslyn  v.  Dow,  260 
Joy  v.  Adams,  156 
Judge  v.  Vogel,  161,  165 
Judson  v.  Corcoran,  422,  429 
Kamena  ».  Huelbig,  184,  186,  187, 

192, 195,  200 

Kammatt  v.  Wyman,  237 
Kansas  City  etc.  Co..  in  re,  154,  161 
Kansas  City  Savings  Assn.  v.  Mastin, 

144,  154 

Kassing  v.  International  Bank,  219 
Kearsley  v.  Cole,  250 
Kellock's  Case,  111 
Kelly  v.  Herrick,  217,  218,  236,  238 
Kelley  ®.  Mobile  etc.  Assn.,  135 
Kellogg's  Case,  154 
Kellogg  0.  Ames,  195 

v.  Curtis,  57 

v.  Smith,  197 

«.  Stockwell,  271,  273,  280 
Kelly  v.  Whitney,  144,  153,  161 
Kelner  n.  Krolich,  161 
Kelsey  v.  Bank  of  Crawford  Co.,  331 

v.  Hibbs,  32 


Kemp  D.  Falk,  1,  405,  4(>6 

v.  Westbrooke,  132 
Kendall,  ex  parte,  98,  397 
Kennedy  v.  Strong,  407 
Kennicott  v.  Supervisors,   44,   161, 

162 
Kendall  v.  Hamilton,  59 

v.  Wood,  54 
Kennard  ».  Knott,  241 
Kent  v.  Miltenberger,  347 
Kenworthy  v.  Sawyer,  207 
Keohane  v.  Smith,  143,  144 
Keokuk,  the,  386 
Ketcham  v.  Durfee,  53 
Ketchell  v.  Burns,  253 
Keyes  v.  Wood,  144 
Kidd  v.  McCormick,  447 
Kiff  v.  Old  Colony  Ry.  Co.,  394 
Killian  v.  Hoffman,  105,  126,  332 
Kimball,  the,  29,  110 
Kimber  v.  Barber,  332 
Kimbro  v.  Bullitt,  50 

v.  Lytle,  23,  34 
Kimmel  v.  Lowe,  215,  228 
Kinderley  v.  Jervis,  428 
Kindt's  App.  241 
King  v.  Baldwin,  220 

v.  Bennett,  213 

v.  Doolittle,  23,  27,  28 

v.  Faber,  54 

v.  Green,  135 

v.  Haynes,  220 

v.  Shepherd,  374,  386 
Kingman  v.  Perkins,  425,  428 
Kingsford  v.  Merry,  437 
Kingsland  v.  Pryor,  23,  26,  27,  33 
Kingston,  ex  parte,  62 
Kinlock  v.  Craig,  405 
Kirkpatrick  ®.  Bonsell,  349,  350,  353, 
359 

0.  Hawk,  239,  240 

v.  Muirhead,  23,  28 
Kiser  v.  Ruddick,  114 
Kittera's  Est.,  in  re,  115,129 
Kit  Hill  Tunnel  Co.,  in  re,  447 
Klauber  v.  Biggerstaff,  424 


XiXVl 


TABLE   OF   CASES. 


Kleeman  v.  Frisbie,  170 
Knatchbull  v.  Hallett,  63 
Knauf's  App ,  215 
Knight  v.  Cambers,  357 

v.  Hughes,  230 
Knighton  v.  Curry,  212 
Knights  v.  Palmer,  87,  191 

v.  Wiffln,  434 
Knox  v.  Clifford,  23,  28 
Knox  County  v.  Aspinwall,  44,  47 
Knox  County  Bank  v.  Lloyd,  33 
Koester  v.  Burke,  158 
Kortright  D.  Commercial  Bank,  267, 

270.  320,  321,  372 
Krame's  App.,  217 
Kramer  v.  Sandford,  258 
Kreft  v.  Thompson,  381,  398 
Krupp  v.  Kreuggel,  153 
Kuhn  v.  McAllister.  344 
Kuhns  v.  McGeach,  144 
Kurtz  v.  Sponable,  144 
Kyle  v.  Thompson,  158 
Lacey  «.  Hill,  329 
Ladd  v.  Trustees,  244 
Ladue  v.  Detroit  R.  R.  Co.,  165 
La  Purge  v.  Herter,  228 
Lady  Franklin,  the,  386 
Laing  v.  Burley,  271 
Laler  v.  Jordan,  50 
Lalfande  v.  Ingram,  276 
Laloiret).  Wiltz,  79 
Lamberton  v.  Windom,  85,  86,  94, 

114,  117 

Lamsatt «.  Lippincott,  407 
Lancaster  Nat.  Bank  v.  Taylor,  150 
Lane's  App.,  293 
Lane  v.  Bailey,  62,  97 

v.  Davis,  161,  164 

v.  Stacey,  212,  256 

t>.  Williams,  50,  56 
Lang  t>.  Brevard,  240,  241 

v.  Waring,  57 
Langan  v.  Hewett,  55 
Langdon  v.  Duel,  104,  107 

v.  Keith,  144,  149,  V* 
Lange  0.  Perley,  228 


Langston  v.  S.  C.  Ry.  Co.,  46 
Laugton  v.  Waite,  80,  81,  319,  820, 

328,  368 

Lapping  v.  Duffy,  424 
Lash  v.  McCorinick,  156 
Latham  v.  Chartered  Bank  of  India, 

62,  97,  426 
Lathrop's  App.,  213 
Lathrop  v.  Attwood,  222,  224 

v.  Kneeland,  286,  287 

v.  Morris,  34 
Laudry  v.  Vicker,  210 
Laverty  v.  Burr,  57 
Lawrence  v.  Clark,  22,  23,  27 

«.  Maxwell,   306,  327,  335,  338, 
369 

c.  McCalmont,  86,  114,  260 

v.  Minturn,  382 
Lawson  v.  Wright,  236 
Lazear  v.  Nat.  Bank,  259,  260 
Lea  v.  Hinton,  217 
Leabo  v.  Goode,  228 
League  v.  Waring,  29 
Leas  v.  James,  29 
Leask  v.  Scott,  1,  384 
Leather  v.  Simpson,  399 
Leavitt  v.  Fisher,  267,  320,  321 

v.  Palmer,  191 
Leazure  v.  Hillegas,  64 
Lebanon  Bank  v.  Hallenbeck,  180 
Le  Breton  v.  Pierce,  2,  18,  27 
Lecroy  v.  Eastman,  369 
Lee  v.  Baldwin,  86 

v.  Brown,  380 

v.  First  Nat.  Bank,  88 

v.  Griffin,  212 

v.  Hart,  16 

v.  Kimball,  373,  405 

v.  Smead,  23 
Leese  v.  Martin,  61 
Lefflngwell  v.  Fryer,  239 
Leffler  v.  Rice,  50 
Leggett  v.  Bank,  290 
Lehman  «.  Marshall,  413 

v.  Strassberger.  346,  350,  856,'358 

v.  Tallahasse  Mang.  Co.,  17 


TABLE   OF   CASES. 


XXXV11 


Leitch  v.  Wells,  267,  270,  296,  301, 

324 

Lenheim  v.  Wilmarding,  23 
Lenox  v,  Pratt,  255,  253 
Leonard  v.  Cox,  134 
Leonino  v.  Leonino,  61 
Le  Roy  «.  Johnson,  50,  52 
Lesassier  v.  Southwest.  R.  Co.,  384 
Leslie,  in  re,  68,  427 

v.  French.  427 
Lestapies  v.  Ingraham,  303 
Lethbridge  v.  Mytton,  222,  224,  225 
Leury  v.  Cheshire,  230 
Lever  v.  Bessenger,  144 
Leverson  v  Lane,  54 
Levi  v.  Earl,  207 
Levy  v.  Loeb,  103,  327,  369 
Lewis  v.  DeForest,  79,  254 

v.  Hinchraan,  203 

v.  Kirk,  143,  144,  147,  152,  181, 
167,  175 

v.  Kramer,  258 

v.  Lawrence,  428 

v.  Mott,  79,  102,  125,  129 

v.  Palmer,  212,  213,  239 

«.  Reilly,  50,  56 

v.  Varnum,  93 
Lexington  «.  Butler,  47 
Liberty  Bank  v.  Campbell,  54 
Lickbarrow  v.  Mason,  382,  38(5,  395 

397,  405,  413,  546 
Lichty  v.  McMartin,  154 
Lidderdale  v.  Triggs,  212 
Liebbrandt  v.  Myron  Lodge,  248 
Lightner's  App.,  271 
Lilly  v.  Quick,  193 
Lincoln  v.  Bassett,  242 

v.  Stevens,  41 
Lindley  v.  Chase,  95 
Lindsay  v.  Jackson,  226 
Liudsley  v  Reid,  221 
Linn  v.  Neldon,  243 
Linville  v.  Savage,  144 
Lippold  v.  Held,  144 
Liquidators  v.  Liquidators,  202,  2i)3, 
242,  249,  230 


Lithcap  v.  Wilt,  214 

Litchfield  Bank,  in  re,  108, 117, 120, 

131 

Little  v.  Barker,  140,  333 
Littlefield  v.  Story,  430 
Liverpool  Co.  «.  Atkinson,  204 
Livingston  v.  Dean,  185 

ID.  Roosevelt,  54,  56 
Lloyd  v.  Bair,  256 

o.  Dimmack,  228 

v.  Freshfleld,  50 

t>.  Howard,  5,  65 
Lobdell  v.  Baker,  208 

•o.  Merchant's  Bank,  90 
Lock  v.  U.  S.,  249 
Locke  v.  Homer,  222,  224 
Lockhart  v.  Hardy,  155 
Lockwood  v.  Chaustilet,  132 

v.  Ewer,  132 

v.  The  Banks,  290' 

v.  Mechanic's  Nat.  Bank,  274 
Lochrane  v.  Solomon,  2 
Loeb  v.  Peters,  263,  373,  384,  405 
Logan  v.  Bond,  53 

v.  Musick,  348 

v.  Smith,  1,  4,  16,  23,  25,  31.  33 
143, 144,  151, 161,  166 

«.  Talcott,  230 
Lombardo  «.  Case,  370 
London  Ass.  Co.  v.  Bold,  204 
London  &  S.   W.   Bank  v.  Went- 

worth,  66,  68 

Long  Island  R.  R.  Co.,  in  re,  283 
Longley  v.  Griggs,  256 
Longworth  v.  Flagg,  153,  154 
Loomis  v.  Fay,  240,  246 

v.  Hudson,  142 

«.  Ruck,  207 

v.  Stave,  90,  121 
Loon,  the,  386,  388 
Loosemore  v.  Radford,  222,  224,  225 
Lord  v.  Bigelow,  109,  110 

v.  Morris,  144 

v.  Ocean  Bank,  23,  31,  34,  36,  42 
Lord  Southampton's  Est.,  in  re,  200 
Losey  v.  Simpson,  186 


XXXV111 


TABLE  OF    CASES. 


Loughbridger  v.  Bowland,  228 
Louisana  State  Bank  v.  Gaienne,  16, 

42,90 

Louisville  Manf.  Co.  t>.  Welch,  259 
Loveland  v.  Shepherd,  261 
Loving  t>.  Dixon,  245 
Lover  t>.  Bessenger,  144 
Lowe  v.  Newbold,  215 
Loewenthal  v.  McCormick,  175, 181 
Lowery  v.  McKinney,  239 
Lo wry  «.  Commercial  Bank,  275,  298, 
302,  309,  310 

c.  Murrell,  29 

Lucas  t>.  Harris,  106, 107, 145, 156, 157 
Ludington  v.  Bell,  228 
Ludlow  v.  Simond,  204 
Lynch  v.  Hancock,  228 

«.  Keith,  144 

v.  Swayne,  157 

Lyon  v.  Culbertson,  349,  351,  359, 
363,  367 

0.  Ewings,  16 

t>.  Huntington  Bank,  32,  36,  90, 

114 

Lytle  v.  Pope,  236 
Mabbitt  v.  White,  50 
Machinists  Nat.  Bank  v.  Field,  310 
Mackintosh  «.  Wyatt,  246 
Macky  v.  Dillinger,  410 
Macnee  t>.  Gorst,  384,  408 
Macon  Ry.  Co.  v.  Georgia  Ry.  Co., 

180,  260 
Magee  v.  Badger,  7 

v.  Leggett,  212,  214,  215 
Magin  v.  Dinsmore,  894 
Magruder  v.  Admire,  236,  238 

v.  Colston,  282,  328 
Mahone  v.  Central  Bank,  32 
Maier  v.  Canavan,  220 
Maitland  v.  Bank,  7, 18,  31, 37,  38, 40, 

66,  70 

Major  v.  Holmes,  207 
Malcolm  t>.  Scott,  423 
Malrury  v.  Ring,  161, 168 
Mandeville  v.  Welch,  424 
Mandigo  v.  Mandigo,  231 


Mangles  v.  Dixon.  428 
Manhattan  Co.  v.  Reynolds,  4,  81 
Manhattan  Bank  v.  Thompson,  207 
Mann,  in  re.  423 
Mann  v.  Eckford,  260 

v.  Sluffner,  407 
Manning  «.  Haight,  261 

v.  Hays,  51 

v.  McClure,  18,  19,  28 

v.  Shotwell,  209 
Manten  v.  Sheen,  349 
Manuf .  Bank  v.  Dickerson,  206 

v.  Farmer's  Bank,  390 

v.  Winship,  56 
Manuf.  Co  v  Bradley,  46 
Manns  v.  Brockville  Bank,  293,  294 
Maples  v.  Wightman,  207 
Marbled  Iron  Works  v.  Smith,  20 
March  v.  R.  R.  Co  ,  280 

v.  Myers,  157 
Marchand  v.  Frellson,  210 
Marengo,  the,  386 
Marie  Joseph,  the,  379,  437 
Marine  Bank  v.  Biays,  159,  304 

v.  Fiske,  373,  400 

v.  International  Bank,  159 

v.  Smith,  258 

v.  Wright,  379,  380,  382,  403 
Mariner's  Bank  v.  Abbott,  203 
Marion  Co.  Comm  v.  Clark,  43 
Markham  v.  Jaudon.  264,  280,  306, 

331,  334,  337 
Marks  v.  Bank,  248 

v.  McGhee,  135 
Marnham,  ex  parte,  349 
Marscliuetz  v.  Wright,  105 
Marsh  v.  Dunkel,  241 

•o.  Thompson  Nat.  Bank,  55 
Marshall  v.  Mitchell,  258 
Marston  v.  Allen,  65 

v.  Marston,  153,  369 
Martin  v.  Cowles,  407 

e.  Creditors,  413 

t>.  Howard,  212 

t>.  McReynolds,  144 

«.  Potter,  428 


TABLE   OF   CASES. 


XXXIX 


Martin  v.  Moulin,  144 

9.  Zellerback,  433 

Martindalea.Burch,  144,151, 165,168 
Marvin  v.  Treat,  228 
Marye  v.  Strause,  332,  363,  370 
Maryland  Ins.  Co  9.  Dalrymple,  306, 

331,  334 

Mason  v.  Bogg,  154 
Mass.  Iron  Co.  v.  Hooper,  289 
Mass.  Nat.  Bank  v.  Law,  55 
Mathews  v.  Aikin,  212 

v.  Finley,  32 

Matteson  v.  Matteson,  106, 107,  199 
Matthews  v.  Albert,  284,  286,  303 

v.  Nat.  Bank,  263,  265,  267,  283, 
310,  318 

v.  Rutherford,  31,  34,  38 

9.  "Walwyn,  148 
Mattingly  v.  Sutton,  226 
Matton  v.  Sheen,  349 
Maxon  v.  Scott,  207 
Maxted  ».  Paine,  363,  371 
May  v.  Chapman,  75 

9.  Hoagland,  349,  350,  417 

9.  Sharp,  90 
Mays  9.  Fritton,  16 
Maybee  v.  Tregent,  399,  401 
Mayer  ».  Campbell,  144 

9.  Isaac,  259 

Mayfield  v.  Douglas,  364 
Mayflower,  the,  386 
Mayo  v.  Hutchinson,  207 

9.  Moore,  42,  112 
Maygood  9.  Railroad  Bank,  298 
Mayhew  9.  Crickett,  230,  237,  239 
Maynard  v.  Sixth  Nat.  Bank,  23 
Meadow  9.  Bird,  18 
Mechanics'  Assn.  v.  Ferguson,  16 
Mechanics  Bank  9.  Bank,  312 

9,  Barnett,  42 

9.  Earp,  290 

9.  Farmer's  Bank,  400,  403 

9.  Field,  308 

9.  Foster,  56 

9.  Griswold,  258 

9.  N.  Y.  &  N.  H.  Co.,  265 


Mechanics  Assn.  9.  Con  over,  264 

Medberry  9.  Soper,  28 

Meed  9.  Nelson,  254 

Meghan  9.  Mills,  192 

Melchert  v.   American  Union  Tel. 

Co.,  348,  349,  351 
Melohoir  9.  McCarty,  359 
Melendy  9.  Keen,  148,  150,  170 
Melledge  ».  Boston  Iron  Co.,  30,  144 
Mellen  9.  Goldsmith,  228 
Menx  9.  Bell,  428 
Meppsfl.  Sharpe.  1, 144 
Merarlo  9.  Hackett,  43 
Merchant's  Bank  9.  Baker,  212,  239 

9.  Colt,  419 

9.  Cook,  283 

9.  Comstock,  35 

9.  Corliss,  39 

9.  Hall,  14.  17,  305 

9.  Hibbard,  413,  420 

9.  Livingston,  57,  320,  325 

9.  Maud,  98,  129 

9.  Phoenix  Ins.  Co.,  436 

9.  Richards,  263,  265,  269,  280 

9.  State  Bank,  65,  79,  312,  327 

9.  Trenholrn,  410,  419 

9.  Union  R.  Co.,  382,  394 

9.  Wixen,  247 
Merle  9.  Wells,  259 
Merrifleld  9.  Baker,  426,  448 
Merrill  9.  Bank,  402 

9.  Town  of  Monticello,  44 
Merritt  9.  Bartholick,  144 
Mersman  v.  Werger,  40 
Merwin  9.  Hamilton,  339 
Mester  9.  Hauser,  154 
Meyer,  ex  parte,  56 

9.  Peck,  392,  393 

«.  Wells,  109,  243 

Meyers  9.  United  Guaranty  Co.,  423 
Meyerstein  9.  Barber,  373,  375,  380, 

382,  395 

Michael «.  Ware,  397 
Michener  v.  Cavender,  186 
Michigan  Bank  9.  Eldred,  1,  3,  16, 
32,  50,  56,  175 


xl 


TABLE   OF   CASES. 


Michigan  Cent.  R  R.  Co.  v.  Phillips, 
374,  879.  381,  382,  383,  404 
Michigan  Ins.  Co.  v.  Leavenworth,  32 
Michigan  Bank  v.  Leavenworth,  27 
Middlebrook  p.  Merchant's  Bank,  341 
Middlesex  Bank  0.  Minot,  121,  304 
Midland  Ry.  Co.  0.  Taylor,  309 
Miffliu  v.  Swift,  51 
Mifflin  County  Nat.  Bank's  App., 

1<4,  186 
Miles  v  Durnford,  302 

0.  Gorton,  29,  100 
Miller  v.  Ege,  301 

0.  Jones,  421 

0.  Knight,  241 

v.  Lamed,  2,  18,  81,  32,  34. 147, 
174,  175,  179,  181 

0.  Maurice,  51,  54 

v.  Ord,  239 

0.  Pollock,  1,  16 

«.  Race,  65 

0.  Rutland  R.  R.  Co.,  47 

0.  Sawyer,  230,  233 

0.  Schneider,  407 

0.  Stewart,  204 

0.  Trustees,  156 

0.  Wack,  193 

0.  Williams,  75 

0.  Williamson,  73 
Millard  v.  Thorn,  109 
Milliken  v.  Dehon,  330,  334,  336,  337 

v.  Whitehouse,  28 
Mills  0.  Gilbrcth,  63 
Mitchell  v.  Bass,  230 

0.  Burnham,  147, 192 

0.  De  Witt,  215 

0.  Laden,  144,  158 

0.  Newhall,  363 
Mix  v.  Muggy,  40,  50,  56 

0.  Nat.  Bank,  18,  28 

0.  Singleton,  204 
Moakley  v.  Briggs,  261 
Mocatta  v.  Bell,  320,  369 
Moellerfl.  McLasan,  328,  367 
Moffltt  v.  Roche,  159 
Mohawk  Valley  v.  Corey,  34 


Mohawk  Bank  v.  Van  Home,  242    . 
Moniteau  Bank  ®.  Miller,  13."»,  141 
Monitor  Ins.  Co.  v.  Buffun,  178 
Monongahela  Nat.  Bank    v.   Over- 

holt,  139 

Monson  v.  Drakeley,  230 
Montclair  v.  Ransdell,  43 
Montomery  v.  Elliott,  47 
Montgomery  Bank  v.  Albany  City 

Bank,  214 

Montague  v.  Boston  R.  R.  Co.,  161, 
167, 175, 183 

0.  Perkins,  32 

Moodie  0.  Nat.  Bank,  270,  279 
Moores  v.  Citizen's  Nat.  Bank,  317 
Moore  0.  Gray,  239 

0.  Hall,  5 

0.  Holcombe,  429 

0.  Metropolitan  Nat.  Bank.  185, 
187,  289,  293,  390,  422,  432, 
438,  439,  471 

0.  Toplifl,  214,  223 

0.  Ware,  158,  159 
Moorehead  v.  Gilmore,  50 
Moran  v.  Miami  County,  47 
Morehead  v,  Duncan,  217 
Moreland  v.  State  Bank,  220 
Morgan,  ex  parte,  350,  352 

0.  Gregg.  337 

a.  Jaudon,  306 

0.  Martieu,  204 

0.  Mechanic's  Banking  Assn, 
100,  135 

0.  Smith,  144,  161,  228,  236,  250 
Morris  0.  Bacon,  144,  161,  164,  175 

0.  Bethell,  437 

0.  Cheney,  430 

0.  Harvcys,  29,  109 

0.  Preston,  17,  18,  65,  72,  78 

0.  Timbridge.  348 

0.  Way,  141 

0.  White,  153,  175 
Morris  Canal  Co.  v.  Fisher,  8 

0.  Lewis,  117,  120,  187,331 

v.  Van  Vorst,  220 
Morrison  v.  Kuntz,  98 


TABLE   OF   CASES. 


Xli 


Morrison  v.  Marion,  215 

D.  Mormon,  154 

v.  Poyntz,  231 

D.  Taylor,  231 
Morse  v  Huntington,  250 
Mortimer  v.  McCullan,  348,  352 
Mortimer  v.  Morine,  348 
Morton  v.  Burn,  27 
Morton  «.  Naylor,  424 
Morton  etc.  Co.  v.  Wysong,  291 
Moses  t>.  Comstock,  161 

v.  Ela,  258 

v.  Murgatroyd,  217 

t>.  Hall,  243,  247 

v.  Keesler,  144 
Mott  v.  Clark,  138,  186,  190 

v.  Havana  Bank,  257,  332 

v.  U.  S.  Trust  Co.,  180,  303 
Motte  v.  Dorrell,  145 
Mottram  v.  Heyer,  413 
Mount  Holly  Turnpike  Co.  «.  Ferrie, 

265,  267,  270,  320,  333 
Mower's  Trusts,  in  re,  98 
Mowry  v.  Bishop,  141 

v.  First  Nat.  Bank,  111 

v.  Walsh,  417 

Moynahan  v.  Hanford,  40,  57 
Mozier's  App.,  214 
Mueller  v.  Dobschuetz,  250 
Muench  v.  Nat.Bank,  61 
Muir  v.  Crawford,  250 

v.  Schenk,  428 
Muirhead  a.  Kilpatrick,  15 
Muldon  v.  Whitlock,  29,  109 
Mullen  v.  Morris,  95 
Muller  v.  Waddlington,  212 
Munger  «.  Albany  City  Bank,  104 
Munn  v.  McDonald,  2,  4,  16 
Munroe  v.  Cooper,  54,  56 
Muutcr  v.  Moul,  88 
Murdock  v.  Columbus  Ins.  Co.,  330 

«.  Ford,  158 
Mure,  ex  parte,  111 
Murphy,  in  re,  273 
Murray  v.  Beckwith,  65 

t>.  Jones,  161 


Murray  v.  Lardner,  8,  43,  57.  68,  69, 
75 

v.  Lylburn,  429 
Murtrie  v.  Twitchell;  184 
Mutual  etc.  Ins.  Co.  v.  Davies,  220 

v.  Norris,  188 

Mutual  Nat.  Bank  ».  Richardson,  54 
Myett  v.  Bell  29 
Myer  v.  City  of  Muscatine,  43 
Myers  v.  Guarantee  et*.  Co.,  426 

v.  Nat.  Bank.  204 

0.  Railroad  Co.,  47 

v.  United  Guaranty  Co.,  441 
McAllister  v.  Kuhns,  263,  264,  271, 
272 

t>.  Sprague,  250 
McCall  ».  Lennox,  144 
McCalla  v.  Clark,  282,  287,  344,  346 
McCandless  v.  Engle,  186 
McCarthy  v.  "White,  144 
McCarty  v.  Roots,  6,  18,  19,  25 
McClelland  ».  Remsen,  50 
McClintic  v.  Wise,  158,  160 
McCluer  v.  Ry.  Co.,  180,  260 
McClure  v.  Burris,  151 

v.  Oxford,  48 
McClurg  v.  Fryer,  261 
McClusky  v.  Cromwell,  204,  206 
McCollough  1).  Sommerville,  50 
McCollum  v.  Jobe,  144 
McCombie  •».  Davis,  407 
McConnell  v.  Wenrich,  186,  190, 198 
McCormick  v.  Irwin,  212 
McCoy  v.  Hazlitt,  28 

v.  Lockwood,  220 
McCracken  v  German  Ins.  Co.,  143, 

161, 175 
McCrary  v.  Cashey,  32 

«.  Slaughter,  50 
McCready  v.  Rumsey,  290 
McCreary  v.  Gaines,  407 

v.  McCreary,  228 
McCrory  v.  Parks,  230 
McCrum^.Corby,  144,  151,  161, 164, 

175,  176,  181 
McCune  t>.  Belt,  230,  233,  234 


xlii 


TABLE   OF   CASES. 


McCurdy's  App ,  124 

McDaniels  t>.  Flower  Brook  Manf. 

Co.,  283 

McDoal  v.  Yeoraans,  253,  261 
McDonald  v.  Hulse,  144 
McDougald  v.  Daugherty,  215 
McDowell  v.  Bank,  290 

v.  Lloyd,  158 

0.  Phoenix  Fire  Ins.  Co.,  290 
McElrath  v.  P.  &  S.  R.  Co.,  43 
McFarland  v.  Gilchrist,  186 
McGregor  v.  Railway  Co.,  260 
McHenry  v.  Jewett,  283 
Mcllrain  v.  Mutual  Ins.  Co.,  210 
Mcllvaine  v.  Edgerton,  348 
Mclntire  v.  Yates,  18,  170.  175 
Mclntyre  v.  Kennedy,  29,  109 
McKee  v.  Hamilton,  50,  52,  203 
McKenny  v.  Waller,  241,  248 
McKenzie  v.  Bank,  23 
McKernan  v.  Robinson,  154 
McKim  v.  King,  47,  48 
McKinnell  v.  Robinson,  359 
McKinster  v.  Bauk  of  Utica,  116 
McKnight  v.  Kinsley,  28 
McLane  v.  Paschall,  157 
McLean  v.  Fleming.  393 

v.  Radsdale,  225 

t>.  Walker,  29,  129 
McLellan's  App.,  210 
McLellan  v.  Cumberland,  250 
McLenore  ».  Powell,  239 

v.  Hawkins,    88,    90,    91,    96, 

If4,  119 
McLeod    v.  Drummond,   296,  298, 

301 

McLughan  v.  Bovard,  88 
McMahon  v.  Fawcett,  230 
McMahon  «.  Macy,  284,  236,  287 
McMillan  «.  Richards,  144 
McMillen  v.  Bank,  2->3 
McMurtrie  ».  Twitchell,  189 
McNaghten's  App.,  50,  52,  54 
McNamarav.  Condon,  144 
McNeilly  v.  Cooksey,  241 
McNeil  t>.  Hill,  412,  413,  416 


McNeil  v.  Tenth  Nat.  Bank,  263. 
265,  267,  270,  271,  275,  306, 
814,  316,  320,  321,  390,  436 
438 

McNulty  v.  Hurd,  249 
McPherson  v.  Talbott,  234 
McQuil  v.  Peay,  144 
McVee  v.  Frost,  62 
McVey,  in  re,  97 

Naglee  v.  Pacific  Wharf  Co.,  273,  295 
Nagley  v.  Lyman,  27 
Nahriug  v.  Bank  of  Mobile,  293,  294, 

328,  339 

Nally  ».  Long,  230 
Napier  v.  Elam,  23 
Natal  Investment  Co.,  in  re,  49,  432 
Nathan  v.  Giles,  382 
National  Bank  v.  Bailey,  380 

v.  Bigler,  143,  219,  222,  225, 250 

c.  Case,  282,  283,  285,  303 

v.  Crocker,  379 

v.  Day,  52 

v.  Dearborn,  263,  374,  3S2,  383 

0.  Faut,  3,  102,  106,  129,  257 

v.  Graham,  312 

\  Grand  Lodge,  90 

JL  Hall,  279,  303 

0.  Ins.  Co.,  62 

0.  Lavielle,  388 

v.  Matthews,  143,  144,  161,  163, 
175,  180 

9.  Mears,  64 

0.  Nat.  Bank,  289 

o.  Newburgh,  254 

0.  Place,  248 

0.  Rowell,  64 

0.  Savery,  75,  76 

0.  Small,  254 

v.  Smith,  241 

v.  Thomas,  52 

v.  Walibridge,  382,  413,  420 

v.  Watsontown  Bank,  263,  264, 
269,  270,  273,  283,  289,  813 

0.  Whitney,  143, 144,  180 
Nat.  Exchange  Bank  a.    Hartford 
etc.  Ry.  Co.,  8,  47 


TABLE  OF   CASES. 


xliii 


Nat.   Exchange   Bank  v.   Slillman, 
254 

v.  Drew,  312 

Nat.  Bank  of  Erie  v.  Brown,  139 
Nat.  Mech.  Bank  Assn.  v.  Conkling, 

204.  206 

Nat.  Sav.  Bank  v.  Tranah,  109,  110 
Nat.  Security  Bank  v.  McDonald,  76 
Nat. Union  Bank  v.  London,  50 
Nat.  Bank  of  U.  A.  v.  Kirby,  46 
Natona  Water  Co.  «.  Clarkin,  180 
Nauman  «.  Caldwell,  337 
Navigation  Co.  v.  Roll,  245 
Navulshaw  v.  Brownrigg,  407,  409 
Neal  0.  Freeman,  220 
Neff®.  Miller,  212 
Neff's  App.,  239  240 
Negus,  in  re,  222,  224 
Neiler  v.  Kelly,  264,  344,  369, 377 
Neilson  v.  James,  363,  372 
Nelson  v.  Dunn,  160 

v.  Eaton.  4,  86,  87.  90,  93,  118 

9.  Edwards.  90,  117,  118 

9.  Fry,  215 

«.  Hurford,  141 

v.  Mclntyre,  418 

9.  Meunch,  230 

9.  Wellington,  4,  90,  117,  118 
Neponset  Bank  v.  Leland,  62,  97 
Neptune  Ins.  Co.  v.  Dorsey,  214 
Nesbit  9.  Bank,  264,  276,  278 

9.  Worts,  223 

Nesmith  v.  Washington  Bank,  289 
Neustadt  v.  Hall,  260 
Nevitt  v.  Bacon,  156 
New  Bedford  Savings  Inst.  ®.  Fair- 
haven  Bank,  217,  234,  254 
Newberry  v.  Rand,  42 
Newbold  v.  Wright,  407 
Newcomb  v.  Blakeley,  247 

9.  Railroad  Co.,  374 

v.  Raynor,  239 
Newell  0.  Fowler,  261 
Newhall  v.  Farges,  405 
N.  H.  Savings  Bank  v.  Colcord,  239 

»  Gill,  14 


New  Bank  v.  Brocklebank,  290 

9  Lee.  217,  239.  254 
New  London  County  Bank  v.  Mitch- 

.  ell,  204 

New  Orleans  Canal  Co  v.  Montgom- 
ery. 144,  149,  161,  163 
N.  O.  Nat.  Bank  Assn.  v.  Wiltz.  276. 

289,  29J,  293 
Newport  Bridge  Co.  9.  Douglas,  120, 

125,  332 

Newsom  9.  Thornton,  407,  408 
Newton,  ex  parte,  9i 
Newton  9.  Fay,  276,  287,  340,  342 
New  York  Guaranty   Co.,  v.  Water 

Co.,  446 

N.  Y.  Life  Ins.  Co.  9.  Smith,  192 
New  York  Nat.  Exchange  Bank  v. 

Jones,  241 

N.  Y.  &  N.  H.  R.  R,  Co.  9.  Schuy- 
ler,  44,  263,  271,  273,  275, 
811,  312,  314,  365,  390 
New  York  etc.  Works  v.  Smith,  27 
Nichol  9.  Bates,  23,  32,  65 
Nichols  9.  Bellows,  139 

9.  Fearson,  134 
Nicholls  9.  Merry,  363.  371 
Nicholson  9.  Revill,  250 
Nickerson  v.  Ruger,  35 
Niemcewicz  v.  Gahn,  203,  207,  210 
Nightingale  9.  Chaffce,  254 
Noland  9.  Clark,  95,  114 
Norris  9.  Beatty,  158 

9.  Caledonian  Ins.  Co.,  427 
North  9.  Phillips,  337,  346,  349,  350, 
355,  359 

9.  Wakefield,  250 
Northampton  Co.'s  App.,  303 
Northern  Assam  Tea  Co.,  in  re,  282 
N.  W.  M.  L.  Ins.  Co.  9.  Ins.  Co.,  90 
Norton  9.  Abercrombie,  227 

9.  Burns,  22 

9.  Cooms,  230,  233,  237- 

9.  Cooper,  233 

9.  Piscataqua  Ins.  Co.,  428 

9.  Plumb,  219 

9.  Reid,  223 


xliv 


TABLE  OF  CASES. 


Norton  0.  Rose,  186 

9.  Soule,  243 

v.  Waite,  28 

Norwalk  D.  Nat.  Bank,  28,  52 
Nourse  0.  Pope,  205 

v.  Prime.  306,  369 
Noyes  0.  Spaulding,  348,  352,  369 

i>.  White.  144,  160 
Nuerbach  0.  Le  Sueur,  180 
Nutter  v.  Stover,  14,  23 
Gates  0.  Bank,  4, 18,  19,  21,  27, 139 
Oathwite  0.  Peters,  28  . 
Ober  v.  Gallagher,  107/111,  144,  154 
O'Brien  0.  Gilchrist,  392 
Ocliorne  v.  Maxey,  407 
Odlin  v.  Gove,  433 
O'Dougherty  v.   Remington  Paper 

Co.,  195.  200,  382 

Ogden  v.  Lathrop,  320,  327,  334,  369 
Ogle  9.  Turpin,  147 
Ognum  0.  Reynolds,  156 
Ohio  Life  Ins.  Co.  0.  Ledyard,  217, 

238,  254 

Ohio  R.  R.  Co.  v.  Kerr,  382,  394 
Oil  Creek  Co.  0.  Penn.  Co.,  303 
Oldershaw  v.  Knowles,  372 
Olds  v.  Cummings,  147.  169,  174 
O'Mulcahy  0.  Holley,  147, 172 
Onondago  Bank  v.  De  Puy,  51 
O'Neill  ».  Wightman,  115,  335 
Ontario  Rank  v.  N.  J.  Co..  403 

v.  Worthington,  23 
Ord  v.  McKee,  144,  161 

0.  White,  422 
Oregon  v.  Allison,  245 
Orm  v.  Merchants'  Bank,  64,  180 
Orme  v.  Young,  220,  241 
Ormsbee  D.  Davis,  50 
Ormsby  v.  Fortune,  88 
Orr  0.  Churchill,  447 
Orrick  v.  Vahey,  204 
Osbornu  v.  Stone,  54,  55 

0.  Mancure,  35 

9.  Noble,  212,  213 
Osgood  v.  Artt.  150 
Ostcrhout  v.  Shoemaker,  422 


Otis  0.  Gardner,  264.  267,  269,  316 
Ottawa  v.  Carey,  43 

».  National  Bank,  8,  43 
Ould  v.  Stoddard,  154 
Oulds  v.  Harrison,  357 
Overholt  v.  Nat.  Bank,  135,  141 
Overlook  v.  Hills,  90,  129 
Overstreet  v.  Munn,  128,  129 
Owen's  App.,  212,  215,  216 
Owen®.  Davis,  356 

0.  Roman,  202 

v.  Long,  207 

0.  Miller,  217 
Oxford  Bank  v.  Bunnell,  273 

v.  Hay ues,  88 

v.  Lewis,  242 

Oxford  Turnpike  Co.  v.  Bunnell,  295 
Oxley  v.  Stover,  250 
Pacific  Bank  v.  Mitchell,  314 
Paddon  9.  Taylor,  397 
Paige  0.  Chapman,  161,  164 
Paine  v.  French,  144 

9.  Furnas,  18 

9.  Hutchinson,  268 

v.  Packard,  220 
Palmer  v.  Harris,  153, 154 

0.  Hendric,  155 

9.  Merrill,  424 

9.  Purdy,  203,  250 

v.  Richards,  4,  5,  6,  65 

v.  Yates,  175,  195 
Pancoast  v.  Trav.  Ins.  Co.,  180 
Pannell  v.  Hurley,  62 
Partlee  v.  Fish,  425 
Paris  Bank  v.  Beard,  159 

0.  Hulett,  212 
Park  Bank  v.  Watson,  35 
Parkam  Co.  9.  Brock,  29,  144 
Parker,  in  re,  29 
Parker  v.  Burgess,  58 

v.  Cousins,  58 

«.  Leigh,  254 

0.  Watson,  249 
Parmelee  ».  Lawrence,  250 
Parrott  v.  Colby,  28 
Parshall  0.  Eggert,  420 


TABLE  OF   CASES. 


xlv 


Parsons  v.  Clark,  214 

v.  Jackson,  46,  48,  69 

v.  Martin,  332,  363,  368 

9.  Welles,  145 
Partee  v.  Bedford,  29 
Partie  v.  Corning.  6,  9 
Partridge  v.  Davis,  253 
Paterson  v.  Tash,  407,  408 
Patent  File  Co..  in  re,  22 
Patterson  v.  Hitchcock,  433 

v.  Johnson.  14 

9.  Pope,  212 
Pattison  v.  Hull,  97, 144 
Poughkeepsie  v.  Hasbrouck,  4 
Paul  v.  Berry,  230,  234 
Paulette  v.  Brown,  27,  65,  77 
Paulin  v.  Kaighn,  230-232,  238,  243 
Paw  Paw  v.  Eggleston,  204,  206 
Payne  v.  Beasley,  18,  27 

v.  Burnham,  435 

v.  Cutler,  23 

v.  Elliott,  344 
Peabody  v.  Speyers,  349 
Peacock  v.  Jeffrey,  228 

9.  Purcell,  4,  22,  109, 110 

v.  Rhodes,  66 
Pearl  9.  Deacon,  202 

v.  Williams,  241 
Pearsall  v.  Sumniersett,  204 
Pearson  v.  Scott,  296,  299,  373 

9.  Stpddard,  32 
Pease,  ex  parte,  61 
Pease  9.  Rush,  425 
Peck  v.  Bligh,  150 

9.  Davis,  228 
Pelzer  v.  Campbell,  207 
Pendergast  v.  Bank,  290 
Pendleton  Co.  v.  Amy,  44 
Pendleton  v.  Fay,  191,  298 
Penn  v.  Borman,  260 
Penn  Bank  v.  Frankish,  23,  28 
Pennell  v.  Deffell,  62,  402 

r>.  Miller,  427 

v.  Reynolds,  16 

Pennsylvania  R.  R.  Go's  App.,  184, 
189,  315,  316,  320 


Penn.  R.  R.  Co.  9.  Pemberton  R.  R. 

Co.,  218 

P.  R.  R.  Co.  v.  Thompson,  43,  174 
Pennsylvania  v.  Delaware  Co.,  210 
Penny  v.  Crane  Mnfg.  Co.,  261,  262 
Penny  9.  Foy,  222 
People  v.  Brown,  433 

9.  Devin,  295 

v.  Elmore,  295 

v.  James,  239 

v.  Johnson,  422,  446 

v.  Tompkins,  204 

v.  Vilas,  206 
People's  Bank  v.  Cutler,  273 

v.  Finney,  158 

9.  Gayley,  412,  417,  419 

v.  Gridley,  271,  275,  295 
Percival  ».  Frampton,  22,  38,  66 
Perfect  v.  Musgrave,  242 
Peril  v.  Dallis,  221 
Perkins  v.  Catlin,  261 

v.  Kershaw,  229 

9.  Sterne,  144,  157 
Perrin  9.  Poulson,  135 
Perrine  9.  Firemen's  Ins.  Co.,  240 
Perry's  App.,  159 
Perry  v.  Green,  258 
Persch  v.  Nat.  Bank,  296,  297 
Peter  9.  Beverly,  109 
Peters  9.  Barnhill,  228 

9.  Elliott,  379,  382,  384,  404 

v.  Jamestown  Bridge,  144 

9.  Linenischmidt,  220 

9.  Mortimer,  135  /. 

Peterson  v.  Mayor,  44 

9.  Roach,  52 
Petillon  9.  Noble,  170 
Petrie  9.  Clark,  23,  27,  71,  73 

9.  Hannaway,  357 
Pettee  9.  Prout,  7,  8,  47 
Pettibone  v.  Stevens,  154 
Pettit  v.  First  Nat.  Bank,  379,  382 
Phares  v.   Barbour,  209,  212,   213, 

239,  247 

Pharr  9.  McHugb,  241 
Phelan  9.  Olney,  144,  145 


xlvi 


TABLE   OF   CASES. 


Phene  v.  Gillhim,  238 
Philadelphia  Ry.  Co.  v.  Quigly,  312 
Philbrook  v.  McEwan,  240,  241 
Philip  v.  Barker,  341 
Philips  v.  Austin,  89 

ex  parte,  91,  92,  353 

t>.  Im.   Thorn,  437 

t>.  Mariner,  159 

t>.  Singer  Mnfg.  Co..  204 

v.  Thompson,  198,  217 
Philpot  v.  Briant,  239.  241,  247 
Phoenix  Ins.  Co.  v.  Church,  23,  27 
Pickard  v.  Sears,  440 
Pickene  v.  Webster,  118 

v.  Yarborough,  86,  88 
Pickering  v.  Cease,  349,  351, 355,  359 

v.  Demeritt,  332,  372 

v.  Ilfracombe  Ry.  Co.,  428 
Pickersgill  v.  Lahcns,  251 
Picket  v.  Jones,  144 
Pidgeon  v.  Burslcm,  357 
Pier  v.  Bullis,  11,  67 
Pierce  v.  Boston  Saving's  Bank,  425 

v.  Faunce,  143,  144,  149, 164 

v  Kearney,  127 

v.  Kibbee,  176 

v.  Shaw,  158,  159 
Pilot  u.  Jackson,  289 
Pine  v.  Smith,  35 

Pinkerton  v.  Manchester  R.  R.  Co., 
264.  271,  273,  287,  295,  340 
Pinkett  v.  Wright,  427 
Pinnell  v.  Boyd,  140 
Piper  v.  Piper,  422 
Pippin  T.  Bond,  220 
Pitts  v.  Foglesong,  23,  26, 31,  33,34,36 
Pittsburgh  v.  Thompson,  240 
Pittsburgh  Ry.  Co.  •».  Schaeffer,  220 

v.  Stewart,  286,  287 
Pixley  v.  Boynton,  346,  348,  350,  355 
Place  v.  Mcllwain,  243 
Plain  v.  Roth,  153 
Plant's  Manf.  Co.  v.  Favey,  91,  113 
Platt  v.  Birmingham  Axle  Co.,  276 

v.  Hawkins,  276 
Pledge  v.  Buss,  212,  250 


Poe  v.  Darrah,  237 
Poirier  v.  Morris,  22 
Polhill  v.  Walter,  208 
Police  Jury  v.  Donaldo,  100.  343 
Pollaid  v.  Vinton,  263,  311,  373,  375, 
330,  385,  388,  389,  392,  394 
Pollock  v.  Macon,  157 

v.  Nat.  Bank,  309,  318 
Pomeroy  v.  Rice,  14 

v.  Tanner,  240 
Pond  v.  Clarke,  144,  254 

v.  Eddy,  175 

«.  Lockwood,  28 
Pool  v.  Dooter,  217 
Pope  v.  Jacobus,  148 
Port  v.  Jackson,  222,  224 
Portage  County  Bank  v.  Lane,  33 
Portalis  v.  Tetley,  9,  384,  385 
Porter  v.  Blood,  100 

v.  Gunnison,  54 

v.  Parks,  317 

v.  Viets,  348 

v.  White,  50 

Portland  Bank  v.  Stubbs,  392 
Post  v.  Dart,  140 

v.  Tradesman's  Bank,  225,  254 
Postlewait  v.  Garrett,  134 
Postmaster  v.  Reeder,  220 
Potter  v.  McDonald,  143 

v.  Stevens,  144 

v.  Thompson,  95 
Potts  v.  Blackwell,  161,  175 

v.  Nathans,  213,  237 
Poughkeepsie  v.  Hasbrouck,  81 

City  Bank  v.  Phelps,  259 
Powell  v.  Conant,  157 

v.  Henry,  94,  114 

v.  Messer,  54 

v.  Rogers,  433 

v.  Smith,  228,  251 

t>.  Waldron,  446 

v.  Waters,  141,  241 
Prall  v.  Hamill,  302 

v.  Tilt,  263,  265,  270,  296,  297, 

301,  302,  320,  333 
Pratt's  App.,  23 


TABLE   OP  CASES. 


xlvii 


Pratt's  Case,  239 
Pratt  v.  Bank,  144 
v.  Coman,  27 
v,  Huggins,  156 
v.  Machinists  Nat.  Bank,  308, 

310 

Preble  v.  Portage  Co.,  46 
Prentice  v.  Graves,  23 
Prescott  v.  Hull,  144,  195 
Preston  v.  Case,  143, 161, 175 
Price,  ex  parte,  14 
Price  v.  Barker,  250 
0.  Grover,  327,  369 
v.  Lyons  Bank,  141 
v.  Price,  22 
v.  Truesdell,  217 
Priest  v.  Watson,  209,  239,  258 

v.  Wheelock,  157 
Pring  v.  Clarkson,  242 
Pringle  v,  Phillips,  75 

v.  Pringle,  76 
Priors  Wood,  186 
Providence  Thread  Co.  v.  Aldrich,  9 
Public  Schools  V.  Heath,  424 
Pugh  v.  Durfee,  18 
Pullian  v.  Taylor,  228 
Pullman  v.  Upton,  282,  283 
Pulsifer,  in  re,  221 
Purcell  v.  Peacock,  22 
Purchase  v.  N.  T.  Exch.  Bank,  341 
Purdy  v.  Doyle,  229 

v.  Powers,  54 
Putnam  v.  Clark,  186 
0.  Lewis,  109,  243 
0.  Story,  18,  428 
v.  Sullivan,  89 
Pybus  v.  Gibbs,  204 
Quillon  v.  Peterson,  53 
Quincy  v.  White,  332 
Quinebang  Bank  v.  French,  144 
Quinn  0.  Hard  28 
liable  0.  Newman,  240 
Raddick  v.  Jones,  23 
Railroad  Co.  0.  Dane,  353 
0.  Freed,  405 
t>.  Howard,  180,  260 


Railroad  Co.  0.  Nat.  Bnnk,  1,  3,  4 
6,  17,  18,  21,  65,  70,  75,  81, 
88,  267 

0.  Selinger,  267 
0.  Sewell,  272 
0,  Sprague  75 
.   0.  Stewart,  282,  283 

0.  Thomason,  271 
Rainbow  v.  Juggins,  240 
Raley  0.  Williams,  189 
Ralston  0.  Davis,  238 
Ramsdell  v.  Morgan,  135 
Ramsey  0.  Lewis,  231 
Randolph  v.  Sherwood,  261 
Ranger  0.  Great  Western  Ry.  Co., 

312 
Rankin  0.  Alford,  423,  424 

0.  McCullogh,  328,  331,  338 
0.  Major,  144 

Raphael  0.  Bank  of  England,  65,  75 
Rasch  0.  Creditors,  328 
Rashdall  0.  Ford,  433 
Rathmore  Ins.  Co.  0.  Dalrymple,  306 
Raust  0.  Hanselt,  54 
Rawles  v.  Deshler,  379,  397,  405 
Ray  0.  Smith,  258 
Real  Est.  Trust  Co.  0.  Leech,  248 
Reddick  0.  Jones,  28 
Reddish  0.  Watson,  14 
Redfield  0.  Haight,  222,  224 
Redmayne  0.  Foster,  329 
Reed  0.  Boardman,  219 
0.  Lambert,  121 
0.  Marble,  192 
0.  Norris,  215 
0.  Smith,  141 

Reedlon  0.  Churchill,  56,  57,  58 
Rees  0.  Barrington,  239,  240 
Reeves  0.  Plough,  88,  90, 114,  442 
0.  Pullian,  220,  238 
0.  Scully,  151,  161 
Regina  v.  Salter,  213 
Reid  0.  Furnival,  87,  91 
Reigart  0.  White,  253 
Reilly  v.  Mayer,  199 
Reineman  0.  Robb,  186 


XiVlll 


TABLE  OF   CASES. 


Relyea  v.  N.  H.  Rolling  Mills  Co., 
392,  393 

t>.  N.  H.  Ry.  Co.,  397 
Remsen  v.  Beck  man,  220 

«.  Graves.  242 
Renard  v.  Fuller,  228 
Reunie  v.  Morris,  371 
Rex  v.  Westwood,  291 
Reynolds  v.  Douglas,  89,  259,  261 

v.  Tapp,  203 

D.  Ward,  241,  248.  268 
Rhett  v.  Roe,  89 
Rice,  ex  parte,  6 
Rice's  App.,  124,  217,  218 
Rice  v.  Benedict,  88,  95,  128 

«.  Cutler,  413 

».  Dewey,  109,  217 

«.  Dillingham,  1,  102, 175,  183 

v.  Downing,  212 

v.  Peet,  129 

v.  Railroad  Co.,  207 

v.  Railt,  23 

v.  Southern  R.  R.  Co.,  124 
Rich  v.  Boyce,  288 

v.  Boys,  104 

D.  Hathaway,  253 

«.  Noble.  272 

t>.  Starbuck,  32 
Richards  «.  Smith,  428 
Richardson  v.  Campbell,  16 

t>.  Hadsall,  151 

0.  Ins.  Co.,  241,  335 

v.  McKim,  158. 160 

v.  Mann,  175, 182 

«.  Rice,  1. 17,  23,  32,  81.  113 

v.  Washington  Bank,  219 

v.  Crawford,  212,  213 
Richmond  ».  Allen,  158 
Richter  v.  Cummings,  215 
Rickert  v.  Madiera.  144 
Ricord  v.  Central  R.  R,  Co.,  312 
Riddle  v.  Bowman,  217 
Rideout  v.  Bristow,  27 
Ridley  v.  Taylor,  56 
Riggs  v.  Pursell,  184,  189,  19« 
Rigney  v.  Lovejoy,  144 


Riley  v.  Johnson,  33 
Rindge  t>.  Judson,  259 
Singling  v.  Kohn,  12,  65,  73 
Risley  v.  Brown,  251 

v.  Phoenix  Bank,  424 
Robbins  v.  Bacon  424 

D.  Richardson,  27,  31,  34,  41,  42 
Roberts  ®.  Bolles,  8 

v.  Hay,  184 

v.  Sykes,  343 
Robert's  App ,  273 
Roberts  v.  Berdell,  337 

v.  Colvin,254 

v.  Hall,  18 

v.  Halsted,  151 

v.  Mansfield,  144,  158,  160 

v.  McCauley,  217 

v.  Sayer,  231 

».  Thompson,  86,  90,  114 
Robertson  v.  Detherage,  230,  238 

v.  Hay,  189 
Robinson  v.  Aldridge,  54 

u.  Frost,  62,  97 

t>.  Hurley,  104,  335,  443 

c.  Lyle,  203 

«.  Lyman,  95 

v.  Magee,  239 

t>.  Memphis  R.  R.  Co.,  373,  375, 
386,  387.  394 

v.  Mollett,  332,  363,  372 

v.  Nesbitt,  428 

v.  Reynolds.  399 

v.  Robinson,  224 

«.  Smith,  18 

«.  Weeks,  207 

Rochester  Bank  v.  Elwood,  204,  206 
Rock  v.  Nicholls,  273 
Rock  fellow  v.  Donnelly,  223,  225 
Rodger  ».  Comptoir,  384,  397 
Rodgers  v.  Grothe,  407 
Rodriquez  v.  Hefferman,  407,  408 
Rogers  v.  Abbott,  254 

c.  Batchelor,  54 

t>.  Gould,  369 

v.  Hosack,  423 

v.  McClellan,  241 


TABLE   OF   CASES. 


xlix 


Rogers  v.  Odom,  206 

v.  School  Trustees,  212,  213,  239 

v.  Stevens,  271,  294 

v.  Tapp,  203 

v.  Thomas,  405 

v.  Trader's  Ins.  Co.,  144 
Rohrle  v.  Stidger,  128 
Rollins  v,  Stevens,  54,  55 
Rollock  v.  Mason,  157 
Rolston  v.  Brockway,  144 
Romaine  ».  Allen,  337 
Root  v.  Bancroft,  213 

t>.  French,  279,  417 
Roper  v.  Sangamon  Lodge,  244 
Rosa  v.  Brotherson,  23 
Rosborough  v.  McAliley,  240 
Rose  v.  Kimball,  186 
Rosenback  v.  Bank,  289 
Rosenberg  v.  Bitting,  28 
Rosenfield  v.  Express  Co.,  394 
Rosenstock  v.  Torney,  331 
Rosevelt  v.  Brown,  282,  283 
Rosewarner  v.  Billings,  357 
Ross  t>.  Howell,  50 

t>.  Jones.  239,  241,  253,  255 

v.  Mitchell,  157 

v.  Southwestern  Ry.  Co.,  263, 265 

«.  Union  Pacific  Ry.  Co.,  340 
Rothwell  v.  Humphries,  50 
Rountree  v.  Smith,  346,  350,  356 
Rowan  v.  Sharp  Rifle  Mnfg.  Co.,  239 
Rowland  v.  Smith,  256 
Rowley  v.  Boll,  106 

c.  Bigelow,  387,  405 

v.  Stoddard,  250 
Roxborough  «.  Messick,  23,  26,  27, 

36,  279 
Royal  Bank  9.  Grand  June.,  8,  113 

v.  Payne  239 

v.  Railroad  Co.,  104 
Royer  v.  Keystone  Nat.  Bank,  14,  23, 

26,  71 

Rozet  9.  McClellan,  240,  335 
Rucker  v.  Robinson,  247,  250 
Ruchizky  ».  Dellavan,  315,  363 
Ruckman  ».  Ryan,  359 
D 


Rudolph  n.  Winters,  349,  355 
Ruhling  v.  Hackett,  144 
Rumball  v.  Metropolitan  Bank,  43 
Rumsey  v.  Berry,  346,  348,  349,  356 
Runals  v.  Harding,  442 
Runyan  t>.  Coster,  64 
Runyon  v.  Mesereau,  195 
Russell  v.  Carr,  159 

v.  Clarke,  253,  259 

v.  Hadduck,  28,  61 

«.  Hester,  88,  257 

v.  Langstaffe,  66 

v.  Leland,  50 

9.  Place,  73,  301 

v.  Weintzer,  220 
Rutland  Bank  c.  Buck,  34 
Rutledge  v.  Squires,  54 
Ryall  v.  Rowles,  138,  435 
Ryan  9.  Chew,  23,  27 

v.  Shaw,  239 
Ryner  v.  Ryner,  214 
Sabin  v.  Bank  of  Woodstock,  271, 

273,  290,  295 
Sackatt  c.  Johnson,  18 
Safford  v.  Wade,  217 
Saline  County  v.  Bail,  240 
Salisbury  Mills  v.  Townsend,  278, 

310 

Baiter  v.  Baker,  149 
Saltmarsh  v.  Bower,  50 

9.  Tuthill,  135 

Saltus  v.  Everett,  316,  397,  399,  401 
Salyers  v.  Ross,  230,  238 
Sample  v.  Rowe,  144 
Sampson  v.  Shaw,  349,  361 
Samuel  v.  Howarth,  239 
Sanders  v.  Davis,  9,  95, 127 

C.Maclean, 373,  379,  395 
Sanderson  v,  Brooksbank,  56 
Sands  v.  Church,  140 
Sanford  v.  Allen,  261 

v.  Maclean,  214 

v.  Wheeler,  141 
Sanger  v.  Bancroft,  145 
Sangster  v.  Love,  144 
Sargent,  ex  parte,  80,  81,  269,  319 


1 


TABLE   OF   CASES. 


Sargeant  v.  Ins.  Co.,  272,  289,  293 
Sargent  v.  Essex  Marine  Ry.  Co.,  293 

v.  Howe,  144, 158 
Sassard  n.  Hinman,  348 
Saunders  v.  'McCarthy,  100 
Savage  v.  Evorman,  228 

v.  Murphy.  190 
Savings'  Aa»u.  c.  iluut,  4,  17 
Savings'  Bank  v.  Bates,  18 

«.  R.  R.  Co.,  390,  397 

n.  Town  of  Roscoe,  43 
Savings'  Inst.  v.  Holland,  25 
Sawyer  v.  Prickett,  18,  28,  144,  101, 
162,  175 

«.  Taggart,  348,  350,  417 

0.  Turpin.  15,  16 
Say  v.  Dascorab,  192 
Sayles  v.  Sims,  230,  233 
Sayre  v.  King,  243,  249 
Scarlett  v.  Vanlnwagen,  370 
Schank  v.  Arrowsmith,  29,  109 
Schaefer  v.  Reilly,  185,  189,  195, 199 
Schepeler  v.  Eisner,  331 
Schepp  v.  Carpenter,  34,  35 
Schmidt  v.  Coutler,  231 

v.  Frey,  144,  153,  173 
Schnitzel's  App.,  213,  237 
Schoole  c.  Sail,  129 
Schooner  Freeman  v.  Buckingham, 

386,  388,  389,  392,  399 
Schrocppel  v.  Corning,  137,  191 

v.  Shaw,  209,  220,  2il 
Schufeldt  v.  Pease,  23 
Schultz  v.  Astley,  66 

v.  Crane,  253 
Schwartz  <o.  Leist,  147 
Schofield.  ex  parte,  305 
Scholcfield  v.  Templer,  243 
Scofield  v.  Deschcr,  154 
Scott's  App.,  215 
Scott  v  Belts,  71 

0.  Featherstone,  212 

v.  Franklin,  61 

v.  Lifford,  448 

0.  Ocean  Bank,  5 

«.  Tyler,  73,  301 


Scribner  v.  Adams,  234,  320 
Seacord  v.  Miller,  258 
Sears  a.  Leforce,  21-2 

v.  Wingate,  388,  332,  393 
Security  Bank  v.  Luttgren,  263,  375, 

379,  381 

Seeley  v.  People,  205 
Seibert  v.  True,  217 
Seipplc's  App.,  261 
Selden  v.  Nat.  Bank,  54,  97,  505 
Seligman  v.  Nat.  Bank,  63 
Seller  v.  Jones,  15 
Selser  v.  Brock,  246 
Semenza  v.  Brinsley,  371 
Semmes  v.  Boykin,  340 
Sewall  v.  Boston  Water  Power  Co., 

265.  309,  315  316,  318, 
Seybel  0.  Nat.  Currency  Bank,  38, 

68,  75,  76 
Seymour  v.  Burrow,  144 

v.  Ives.  336 

0.  Mickey,  32 

0.  Norton,  374 
Sexton  v.  Graham,  421 
Shafer  v.  Reily,  184 
Shales  v.  Seignoret,  348,  369 
Shand  v.  Handley.  190 
Shannon  v.  Marselis,  186, 
Shapley  v.  Abbott.  390 
Sharp  v.  Bailey,  89 

v.  Philadelphia  Wareh.  Co.,  418 
Sharse,  ex  parte,  16 
Shaver  v.  Tyson,  54 
Shaw  v.  Browurig,  408 

v.  Carpenter,  173,  176 

v.  Ferguson,  4C3 

0.  Fisher,  340 

V.  Loud,  2'25 

a.  Nat.  Bank,  401,  402 

v.  Newsom,  158 

v.  Platt,  250 

9.  Railroad  Co.,  263,   873,   378 
879,  381,  412 

D.  Spencer,  178,  265,  298,  838, 

0.  Stone,  407 
Sheffield,  ex  parte,  423 


TABLE   OF  CASES. 


li 


Sheldon  v.  Haxtun,  134,  141 
Shelton  v.  French,  84 
Shepard  v.  Ogden,  228 

®.  Shepard,  225 
Shephard  «.  Allen,  29 
Shepardson  v.  Gary,  420 
Shepheard  v.  Phcar  261 
Shepherd  v.  Gillcspie,  371 

v.  Harrison,  379,  381 
Sherman  ».  Niagara  Fire  Ins.  Co.,  426 

®.  Trader's  Nat.  Bank,  420 
Sherwood  v.  Dunbar,  153 
Shine  v.  Central  Savings  Bank,  253 
Shinn  v.  Budd,  214 
Shipman  v.  Etna  Ins.  Co.  273,  278 
Shoemaker  v.  Mech.    Bank,  2,   303 
Short  v.  Simpson,  381 
Shropshire  Unions  Ry.  Co.  v.  Queen, 
263,  264,  272,  273,  277,  296, 
297,  299 

Shufelt  v.  Shufelt,  140 
Shutton  v.  Wigg'ns,  158 
Sibley  0.   Quinsigamond  Bank,  271, 

273,  278,  293 
Sibree  v.  Tripp,  29 
Sickles  v.  Richardson,  113,  126 
Sickmonw.  Wood,  149 
Siebert  v.  Thompson,  230 
Seigert  v.  Hamel,  134 
,  Sigourney  v.  Lloyd,  25 

0.   Wetherell,  242,  262 
Silver  Lake  Bank  v.  North,  64,  180 
Silverman  v.  Bullock,  31,  32,  41, 147 
Simms  v.  Anglo-American  Tel.  Co., 

272,  273,  308,  310,  320 
Simonds  v  Goodman,  25 
Simpson  ».  Hall,  6,  95 

».  Hart,  226 

Singer  ».  Troutmau,  220 
Singer  Manf.  Co.  v.  Hester,  261 

v.  Littler,  253 

Sioux  City  Bank  v.  Bank,  390,  391 
Sistare  v.  Best,  303 
Sitgreaves  v.  Bank,  23 
Skillctt  v.  Fletcher,  206 
Skilling  a.  Bollman,  381, 382,  384,  396 


Skowhegan  Bank  v.  Cutler,  271,  273 
Slee0.  Bloom,  221 

v.  Manhattan  Co.,  175.  183,  194 
Blevin  v  Monovv,  90,  114 
Sloman  v.  Bank  of  England,  309 
Slotts  v.  Byers,  16 
Small  v.  Franklin  Ins.  Co.,  30 

v.  Franklin  Mining  Co.,  109,  110 

0.  Smith,  31,  37,  75 
Smedes  v.  Iloughtaling.  221 
Smith  v.  Alexander,  237 

v.  Ayer,  73,  75 

v.  Aylesworth,  35 

v.  Bartholomew,  250 

0.  Braiue,  7,  56 

t>.  Bouvier,  348.  350,  352,  356 

0.  Burgess,  143,  175,  176,  178 

0.  Clayton,  220 

v.  Cloptou,  240 

v.  Coale,  119 

v.  Collins,  50 

®.  Conrad,  230 

v.  Crescent  City,  263,  264,  265 

v.  Cunningham,  159 

v.  Day,  159 

v.  Dennison,  50 

0.  Dickinson,  253 

v.  Felton,  93,  102,  115,  129 

v.  Foster,  156 

v.  Harrison,  213 

v.  Harvie,  51 

v.  Hiscock,  23 

v.  Hodson,  213 

0.  Howcll,  222,  224 

v.  Kcohane,  147 

v.  Knox,  42 

v.  Livingston,  57 

v.  Lusher,  56 

t>.  Lynes,  397 

v.  Martin,  251 

».  McLeod,  219,  239 

v.  Munroe,  138,  435 

v.  Pond,  222,  224 

0.  Prmgle,  441 

v.  Rice,  258 

v.  Rockwell,  106 


lii 


TABLE  OF  CASES. 


Smith  v.  Rumsey,  215 

9.  Slaughterhouse  Assii.  276, 289 

9.  Smith,  256 

9.  Stevens,  151 

9.  Strout,  108 

v.  Washington  Co  ,  156 
Smouse  v.  Bail,  114,  442 
Snitz  v.  Thompson,  237 
Snow  v.  Chandler,  250 

9.  Fourth  Nat.  Bank,  6 
Snowden,  ex  parte,  204,  236 
Bnyder  v.  Van  Deuren,  32,  66 
Society  v.  New  London,  43,  44 
Sohler  v.  Loving,  250 
Solly  v.  Forbes,  250 
Solomons  v.  Bank  of  England,  5,  65 
Somersall  v.  Barnaby,  261 
Sonoma  Valley  Bank  v.  Hill,  104, 108 
Soule  v.  Union  Bank,  86,  426 
South,  ex  parte,  424 
South  R  R.  Co.  v.  Chappell,  312 
Southern  Exp.  Co.  v.  Dickson,  394 
Southerin  v.  Mendum,  144, 153 
South  Ottawa  v.  Perkins,  44 
Southwick  v.  First  Nat.  Bank,  31,  34 
Spalding  v.  Bank,  102, 106, 129,  257 

v.  Barr.  114 

9.  Ruding,  397,  405 

v.  Thompson,  441 
Sparhawk  v.  Drexel,  118.  331 
Spear  c.  Crawford,  283 

«.  Hart,  370 
Spears  v.  Hartley,  156 
Speiglemeyer  v.  Crawford,  210,  215 
Spencer  v.  Ballon,  35,  65 

v.  Clarke,  426,  428 

v.  Harvey,  258 
Spitlcr  v.  James,  32 
Spoouer  v.  Holmes,  75 
Spraguc  v.  Cocheco  Manf.  Co.,  298 
Sprig  v.  Bossier,  173 
Springer  v.  Toothaker,  239,  240 
Stafford  v.  Yatcs,  241 
Stalker  v.  McDonald,  23,  24,  65,  71 
Stall  9.  Catskill  Bank,  54,  57 
Stanbury  v.  Smythe,  424 


Stanton  v.  Eager,  405 

v.  Jerome,  322 

9.  Small,  348,  353 

9.  Thompson,  144 
Starr  v.  Earle  260 

9.  Ellis,  142 

9.  Hasbrouck,  186 
State  9.  Baker,  205,  246 

9.  Berning,  73,  230 

9.  Blackmore,  206 

9.  Boatman's  Saving  Assn.,  134 

9.  Cutting,  204,  206 

9.  Delafleld,  8 

9.  Franklin  Bank,  304 

9.  Lake,  144 

9.  Leete,  283 

9.  Manning,  248 

9.  North  L.  Ry.  Co.,  263,  264 

9.  Sandusky,  206 

9.  Waggoner,  208 

9.  Watts,  156 
State  Bank  v.  Gardner,  401 

9.  Jones,  400 
State  Ins.  Co.  *.  Jennett,  289,  293 

9.  Olmstead,  276 
State  Savings  Assn.  9.  Hurst,  16 
Steamship  Dock  Co.  9.  Heron,  289 
Stearns  ».  Bates,  79 

9.  Marsh,  121 
Stebbins  v.  Phoenix  Fire  Ins.  Co., 

265,  293 

Stedman  v.  Gooch,  22,  243 
Steel  v.  Dixon,  230,  231,  233,  234 
Steele  9.  Brown,  114 

9.  Lord,  107,  113 

9.  Mealing,  230,  234 
Stcere  9.  Benson,  42,  113 
Steers  9.  Sashley,  359 
Steger  v.  Bush,  115 
Steiger  9.  First  Nat.  Bank,  409 

9.  Third  Nat.  Bank,  409 
Stenton  9.  Jerome,  306,  331,  334,  365, 

366,  377 

Stephen  v.  Daniel.  249 
Stephenson  v.  Primrose.  258 
Sterling  v.  Forrester,  203,  211 


TABLE   OP   CASES. 


liii 


Sterling  0.  Marietta  etc.  Co.,  241 
Stern  0.  Germania  Nat.  Bank,  46, 
47,  48,  69,  95 

v.  People,  205,  246 
Stetson  0.  Gurney,  407 
Stettheimer  0.  Meyer,  65 
Sevens  0.  Bank,  336 

v.  Boston  R.  R.  Co.,  384,  402 

v.  Blanchard,  15 

0.  Campbell,  23,  28 

v.  Dedham  Inst.,  181,  164,  175 

v.  Foster,  75 

v.  Hartley,  132 

v.  Hurlburt  Bank,  96, 118,  328 

v.  Moore,  233 

V.  Pratt,  180 

0.  Eeeves,  140,  199 

0.  Stevens,  428 

v.  Wilson,  410 
Stevenson  v.  Austin,  243 

v.  Black,  144,  145,  159,  160 

0.  Hyland,  28 

v.  O'Neal,  153 
Stewart 0.  Crosby,  144 

v.  Davis,  239 

0.  Drake,  327,  331,  369 

v.  Farmers'  Ins.  Co.,  302 

v.  Phoenix  Ins.  Co.,    412,  416 

v.  Preston,  144 
Stiles  0.  Davis,  394 

v.  Eastman,  237 
Still  v.  Vance,  204 
Stinson  v.  Brennan,  228 

v.  Thornton,  301 
Stirewalt  v.  Martin,  250 
Stirling  v.  Forrester,  250 
Stocks  v.  Dobson,  193 
Stockton  etc.  Co.,  in  re,  291 

i).  Johnson,  144 
Stockwell  v.  Dillingham,  52 
Stoddard  0.  Kimball,  7,  18,  31,  87, 

38,  42,  66,  70,  78,  92,  177 
Stokes  v.  Frazier,  121,  123,  125,  132, 

136,  332 

Stothoff  0.  Dunham,  252 
Stollenwerck  v.  Thatcher,  263,  373 


Stone  v.  Bond,  260 

v.  Brown,  77,  180,  431 

v,  Marze,  31G,  320 

v   Miller,  29 

v.  Seymour,  219 

0.  Vance,  33 

v.  W.  St.  Louis  etc.   Co.,  386, 
388,  404 

0.  West,  373,  375,  382 
Stoner  v.  Miliiken,  205,  246 
Stoops  0.  Wittier,  221 
Storey  0.  Dutton,  422,  447 
Storms  v.  Storms,  213 
Story  v.  Solornan,  355 
Stout  v.  Folger,  222,  224 

v.  Stout,  29 

v.  Yaeger  Co.,  425,  426 
Stowell  v.  Raymond,  261 
Straff oras  etc.,  in  re,  283 
Strange  0.  Adams,  129 

0.  Blake.  129 

0.  Houston  &  T.  C.  Ry.  Co.,  264, 
271,  273,  275,  293,  309,  316, 

0.  Tooks,  239,  240 
Strasbourg  v.  Echternact,  340 
Straughan  v.  Fairchild,  18 
Straut  v.  Natona  Co..  273,  295 
Stratton  0.  Wiggins,  159 
Strong  0.  Blake,  102 

0.  Foster,  241,  247 

0.  Jackson,  76, 153, 164,  175 

0.  Nat.   Bank,  121,  122,  126 

0.  Smith,  283 

0.  Worcester,  210,  220 
Stuart  v.  Bigler,  102,  103,  106,  114, 
129,  257 

0.  School  District,  44 
Stultz  0.  Silva,  3 

Sturtevant  0.  Jaques,  75,   145,  178 
St.  Alban's  Bank  0.  Dillon,  208 
St.  Joseph  0.  Rogers,  44 
St.  Louis  v  Sickles,  204 
St.  Louis  Bldg.  Assn.  0.  Clark.  146 
St.  Louis  Bank  0.  Ross,  410,  413 
Succ.  D'Meza,  426 
Supervisors  0.  Clarke,  206 


liv 


TABLE  OF   CASES. 


Supervisors  v.  Otis,  239 

v.  Schenk,  43,  44 
Button  v.  Kcttcll,  392 

v.  Tatham,  363 
Suydam  v.  Eartle,  154 
Swan  v.  N.  B.  Aust.  Co.,  309,  316 

v.  Produce  Bank,  76/298,  431 

v.  Steele,  56,  53 
Swain  v.  Frazier,  29 

v.  Wall,  230 
Swartz's  App.,  349 
Swartze.  Lcist,  144, 145,  158, 193 
Sweet  v.  Barney,  382 
Sweetzer  ».  French,  54,  55,  57 
Swenk,  in  re,  15 
Swcnson  v.  Plow  Co ,  144,  157 
Swift  v.  Smith,  1,  65,  70,  75,  77,  81, 
143,  144,  161,  162,  175.  177 

v.  Tyson,  18,  19,  21,  27,  28,  65 
Swope  v.  Leffingwell,  166,  185,  214 
Sykes  v.  Gerber,  29 
Sylverstein  v.  Atkinson,  50,  51 
Taber  v.  Hamilton,  14 
Tabor  v.  Foy,  148 
Taft  v.  Bowker,  425,  428 

v.  Boyd,  30,  144 

v.  Chapman,  23 
Taggard  v.  Courtenius,  335 
Taggart  v  Sawyer,  348 
Tahiti  Cotton  Co.,  in  re,  268,  282, 

288,  320,  321 
Talbott  r>.  Frere,  441 

v.  Wilkins,  212 
Talcott,  ex  parte,  221 
Tallmadge  v.  Pennoyer,  52,  53 
Tall  man  v.  Hoey,  431 
Talmage  v.  Pell,  191 
Talmadge  v.  Bank,  99,  341,  370 
Talty  v.  Frecdmuu's   Savings    and 
Trust  Co.,  79,  82,  129,  132, 
333,  443 

Tapley  «.  Butterfield,  50 
Tarbell  v.  Sturtevant,  16,  42,  90,  91 

v.  West,  429 
Tash  o.  Adams,  44 
Tate  v.  Fletcher,  157 


Tate  0.  Wymand,  249 

Tator  v.  Thayer,  253 

Taussig  v.  Hart.  322,  337,  338,  369 

Taylor  v.  Bank  of  Kentucky,  220 

v.  Bullen,  261 

«.  Cheever,  104 

0.  Daniels,  42 

v.  Ely,  433 

v.  Gitt,  18G 

v.  Jester,  212,  240 

0.  MiamaExp.  Co.,  304 

v.  Morrison,  230,  231 

v.  Page,  148, 161,  164,  176 

v.  Peninsular  Co.,  308 

v.  Plummer,  299 

v.  Sticklaml,  32 

v.  Turner,  374,  379,  404,  409 

v.  Williams,  4 
Teekes  «.  Saloman,  349 
Telegraph  Co.  v.  Davenport,  309,318 
Tenant  v.  Elliott,  357 
Ten  Eyck  v.  Brown,  253 
Ten  Eyck  v.  Holmes,  217,  238 
Tenny  v.  Foote,  349,  355,  359 

v.  Lyon,  215 
Terry  v.  Hickmau,  25 

D.  Tuttle,  161 

v.  Woods,  144 

Teutonia  Nat.  Bank  v.  Locb,  97 
Texas  v.  Hardenbergh,  46,  48,  69 

v.  White,  46,  48,  69 
Thacher  v.  Dunnsmore,  30 
Thacker  v.  Hardy,  348,  356,  357 
Thames,  the,  263,  373,  381,  382,  392, 

396,  404 
Thayer  v.  Barlow,  312 

v.  Daniels,  425,  428,  446 

v.  Manley,  337 

v.  Mann,  91.  128,  156 

®.  Putnam,  96 
Third  Nat.  Bank  v.  Blake,  207 

».  Boyd,  8,  63 

v.  Harrison,  17.  18,  90,  111,  118, 
349,  356.  358,  359 

v.  Seneca  Falls,  43,  47,  48 
Thomas  v.  Mann,  220 


TABLE   OF  CASES. 


IV 


Thomasson  t>.  Brown,  73 
Thomburg  v.  Harden,  244 
Thompson  ».  Bowne,  243,  247 

v.  Doming,  381 

v.  Hall,  241 

v.  Hall,  56 

v.  Hewitt,  127 

v.  Ketchum,  158 

v.  Lee  County,  7,  8,  43,  47 

v.  HcClelland,  226 

v.  Percival,  58 

c.  Robinson,  241,  247,  248 

v.  Shoemaker,  170 

v.  Simpson,  424 

v.  Toland,  265,  298,   300,  316, 

320,  329,  369 
Thome  v.  Bank,  419 
Thornton  v.  Court,  155 

v.  Freeman,  220 

v.  Nat.  Ex.  Bank,  64,  180,  217 

v.  Pegg,  154 
Thrall  «.  Newell,  208 

v.  Spencer,  254 
Thurston  v.  James,  242 
Tibbetts  v.  George,  424 
Tiedman  v.  Knox,  263,  373,  378,  384, 

386,  388,  404 
Tierman  v.  Jackson,  424 
Tiffany  •».  Boatman's  Inst.,  11,   15, 

16,  135,  139 
Tigress,  the,  395 
Tilford  v.  Ramsey,  54 
Tindal  v.  Brown,  202 

v.  Taylor,  393 
Tingle  v.  Fisher,  144 
Tinsley's  Case,  356,  359 
Toby  v.  Smith,  48 
Tobey  v.  Barber,  109 
Todd  v.  Morehouse,  427 
Toledo  Ry.  Co.  v.  Gilvin,  382 
Toles  v.  Adee,  220 
Tome  v.  Parkersburgh  Ry.  Co.,  265 
Tompkins  v.  Colthurst,  98 
Tompkyns  v.  Woryard,  54 
Tonica  R.  R.  Co.  v.  Stein,  286,  287 
Tooke  0.  Newman,  91,  140,  175 


Toplis  v.  Baker,  156 
Torrey  v.  Baxter,  109 

v.  Dearth,  145 

t>.  Grant,  141 
Torriugton  v.  Lowe,  371 
Torn  v.  Goodrich,  251 
Town  of  Colona  v.  Eaves,  43 
Town  of  Eagle  v.  Kohn,  43,  47,  48 
Town  of  Genoa  v.  Woodruff,  47 
Town  of  Thompson  «.  Perrine,  7, 

47,  48 

Towne  ».  Rice,  3 
Tovvnsend  v.  Mclver,  275 

v.  Newell,  104 

v.  Whitney,  212 
Tracy  v.  Yates,  283 
Tradesmen's  Bank  v.  Woodward, 

206 

Traun  v.  Kiefer,  433 
Treasurer  *.  Mining  Co.,  340,  341 
Tregouing  «.  Altenborough,  137 
Trenton   Banking  Co.  v.  Woodruff, 

193 

Treuttel  v.  Barandon,  72,  75,  76,  78 
Trimble  v.  Thome.  241,  255 
Trinity  Church  v.   Higgins,  222,  224 
Tripp  v.  Brownell,  424 

«.  Vincent,  144 
Trist  v.  Child,  423,  424 
Trotter  v.  Erwin,  156 

v.  Shippen,  23 

v.  Strong,  228 

Troutrnan  v.  People's  Bank,  419 
True  v.  Fuller,  253 
Trumper  v.  Colthurst,  98 
Trustees     of     Union     College     v. 
Wheeler,  185,  192,  193,  422, 
432,  439 
Tucker  v.  Bank,  164 

v.  Peasley,  52 
Turner  v.  Nat.  Bank,  64 

t>.  Treadway,  23 
Turnpike  Co.  ».  Ferree,  271 
Tuthill  v.  Davis,  141 
Tutt  v.  Adams,  57 
Tuttle  v.  Tuttle,  228 


Ivi 


TABLE   OF   CASES. 


Tuttle  0.  Walton,  290 
Twinlick  Oil  Co.  0.  Marburg,  74 
Twitchill  v.  McMurtrie,  186 
Twogood,  ex  parte,  5 
Twopenny  0.  Young,  343 
Tyler  0.  Bussey,  33 
Uhler  v.  Browning,  54 
Uley  v.  Guirich,  50 
"Oilman  0.  Barnard,  404 
Union  Bank  0.  Edwards,  314 

t>.  Ewan,  239 

0.  Laird,  210,  211,  255,  271,  273, 
289.  290 

0.  Ridgeley,  391 

0.  Smith,  53 

v.  Stafford,  156 
Union  Nat.  Bank  v.  Barber,  23 

v.  Carr,  346,  348-850 

0.  Crowley,  340 

9.  Roberts,  90 

0.  Underbill,  57 

v.  Warner,  190 

Union  Central  Ins.  Co. 0.  Curtis,  171 
Union  College  v.  Wheeler,  163 
Union  Sav.  Assn.  v.  St.  Louis  Elev. 

Co.,  416 
Union  Trust  Co.  D,  Rigdon,  87,  95, 

96,  117,  118, 135 
United  States  0.  Allsbury,  221 

0.  Arnold,  221 

v.  Boyd,  204 

0.  Herron,  213 

0.  Hodge,  242 

v.  Kirkpatrick,  206 

v.  Murphy,  250 

0.  Preston,  213 

0.  Rice,  251 

0.  Simpson,  341 

0.  Stansbury,  241 

0.  State  Bank,  402 

0.  Sturgess,  161 

0.  Vaughan,  389,  398,  428 

0.  Villalonga,  408 
United  States  Bank  0.  Binney,  50 

0.  Covert,  158,  159 
U.  S.  Mortgage  Co.  0.  Gross,  147 


Updegraft  v.  Edwards,  161, 165 
Urquhart  0.  Mclver,  407 
Upton  v.  Trebilick,  383 
Uthcr  v.  Rich,  75 
Vail  0.  Foster,  317,  354 

0.  Hamilton,  381,  283,  328,  339 
Vallette  v.  Mason,  18,  90,  113 
Valpy  v.  Gibson,  405 

0.  Oakley,  39,  110 
Van  Allen  v.  Nat.  Bank,  62,  403 
Van  Amrige  0.  Peabody,  407 
Van  Blarcom  v.  Bank,  9,  16 
Vance  0.  Erie  Ry.  Co.,  312 

0.  Lancaster,  237 
Vanderbilt  0.  Schreyer,  362 
Vandercook  0.  Baker,  144, 165,  168 
Vanderkemp  0.  Shelton,  147 
Vanderzee  0.  Willis,  61, 133 
Van  Duzer  0.  Howe,  66 
Van  Etten  0.  Trouden,  242 
Vanhorne  0.  Gilbough,  331,  364 
Van  Keuren  0.  Corkins,  192 
Van  Norman  0.  Jackson,  394 
Van  Orden  0.  Durham,  217 
Van  Sands  v.  Middlesex  Co.  Bank, 

264,  275,  239,  303 
Vansant  0.  Allmon,  154,  158 
Van  Wyck  0.  Baker,  191 
Varnum  0.  Bellamy,  27 
Vartie  0.  Underwood,  210 
Vaughau,  the,  394 
Veach  0.  Wickershara,  215 
Veil  v.  Mitchell,  402 
Ventress  0.  Creditors,  159 
Vermilye  0.  Adams,  46,  48,  69,  95 
Verner  0.  Johns,  144 
Vernon  0.  Manhattan  Co.,  58 
Vertue  0.  Jewell,  405 
Vest  0.  Green,  227 
Vickers  0.  Hertz,  436 
Vickey  0.  Dickson,  141 
Vicle  0.  Judson,  185,  433 
Vieley  0.  Hoag,  250, 
Vilas  0.  Jones,  248 
Villars  v.  Palmers,  241 
Vincr  v.  N.  Y.  etc.  Ry.  Co.,  394 


TABLE   OF    CASES. 


Ivii 


Violet  v.  Patton,  32,  66 
Vose  v.  Florida  Ry.  Co.,  331 
Voss  v.  International  Bank,  241 

v.  Robertson,  375,  408 
Vredenburgh  0.  Burnett,  186 
Wade  v.  Stanton,  242 
Wadsworth  0.  Tyler,  16 
Wagner  0.  Freschell,  51 

0.  Peterson,  337 

V.  Simmons,  23 
Wait  v.  Baker,  381 

v.  Brewster,  30,  109 

v.  Green,  397 

0.  Thayer,  56 

v.  Dennison,  239,  240 
Wakefield  Bank,  ex  parte,  61 
Wakeman  v.  Goudy,  95,  114 
Waldring  v.  Harring,  253 
Waldo  Bank  v.  Greeley,  56 

V.  Lambert,  51 
Waldron  ».  Romaine,  413 

v.  Young,  32 

v.  Zacharie,  108 
Walker  v.  Bartlett,  265,  268 

D.  Bennett,  285 

v.  Bank  of  Montgomery,  203 

v.  Bank  of  Washington,  141 

v.  Carleton,  117 

0.  Castle,  126 

v.  Dement,  158,  170 

t>.  Detroit  Transfer  Co.,  315,  316 

0.  Jones,  129,  144,  155 

e.  Lee,  17,  56,  143, 144, 161,  175 

0.  Railroad  Co.,  312 

v.  Schreiber,  144,  158 

v.  Taylor,  73 
Wallace's  est.,  214 
Wallace  v.  Agry,  243 

v.  Foreman,  29 

v.  Hardacre,  68 

v.  Jewell,  32 

v.  McConnell,  47 
Wain  v.  Bank,  289,  290 
Walnut  v.  Wade,  8,  47 
Walter  v.  Ross,  381,  382,  405 
Waltermire  v.  Westover,  156 


Walters  v.  Munroe,  258 
Wanzer  v.  Carey,  144,  198 
Ward,  ex  parte,  370 
Ward  v.  Central  R.  R.  Co.,  308 

v.  Howard,  24,  28 

v.  Morgan,  95 

0.  Stahl,  204 

v.  Stout,  203,  220 
Wardell  v.  Howard,  23 
Warner  v.  Beardsley,  209,  255 
Warren  v.  Brandon  Co.,  294,  331,  333 
Warner  v.  Campbell,  247 

v.  De  Witt  Nat.  Bank,  180 

0.  Martin,  407,  408 

0.  Morrison,  238 
Warren  v.  French,  56 

0.  Hewitt,  356 

0.  Homestead,  147 
Warrington  0.  Furber,  89 
Warwick  0.  Richardson,  222,  224 
Washburn  0.  Pond,  120,  123 
Washington  Bank  0.  Lewis,  72 
Washington  Co.  0.  Slaughter,  144 
Washington  Cottrt  0.  St.  Clair,  205 
Waterman  0.  Brown,  343 

0.  Buckland,  349 

0.  Hunt,  145,  159 
Waters  0.  Carroll,  206 

v.  Riley,  252 
Watkins  0.  Hill,  14 

v.  Inglesby,  228 
Watson  0.  Cabot  Bank,  66,  78 

0.  Hawkins,  144 

0.  McLaren.  433 

0.  Mid.  Wales  Ry.  Co.,  422 

0.  Russell,  37,  70 

0.  Taylor,  15,  16 

0.  Turpley,  21 
Watts  v.  Kinney,  213,  215 

0.  Porter,  428 
Way  0.  Richardson,  7 
Waydall  0.  Luer,  109,  228 
Wayne  etc.  Society  0.  Cordwell,  205 
Weakly  v.  Bell,  242 
Weaver  0.  Barden,  265,  279,  309,  316, 
317,  324 


Iviii 


TABLE   OF   CASES. 


Webb  v.  Haselton,  161 

v.  Hcrne  Bay  Comm.,  440 
Webster's  App.,  214.  237,  255 
Webster  v.  Emp.  Ins.  Co.,  426,  446 

0.  Cobb,  253 

v.  Sturges,  348 

t>.  Upton,  270,  271,  283 
Weed  v.  Adams,  328,  364 

v.  Richardson,  54 

Weed  Machine  Co.  v.  Maxwell,  208 
Weeks,  in  re,  221 
Wegh  0.  Boylan,  138.  184, 189, 190, 

433,  435,  439 
Weikersheim's  Case,  50 
Weinser  v.  Shelton,  136 
Weirick  v.  Mahoning  Co  Bank,  425 
Welch  v.  Mandeville,  446 

0.  Sage!  75.  76 
Welsh  v.  Priest,  147 
Welker  v.  Wallace,  52 
Welkinson  v.  Dodds,  140 
Welborn  v.  Williams,  144 
Wcllock  v.  Constantine,  68 
Wells  v.  Abrahams,  68 

0.  Mann,  220 

«.  Masterman,  54 

0.  Miller,  230,  233 

0.  Smith,  254 

v.  Wells,  85,  115,  143, 175,  227 
Wellsburg  Bank  T>.  Kimberlands,  424 
Welton  v.  Scott,  253,  261,  262 
Wemet  v.  Mississquoi,  30 
Weonston  v.  State,  206 
Werder,  in  re,  446 
West  0.  Carolina  Ins.  Co.,  426,  448 

v.  Bank  of  Rutland,  223 
West  Branch  Bank  v.  Armstrong,  291 
West  Boston  Savings  Bank  0.Thomp- 

son,  209,  256 

Western  Reserve  Bank0.  Potter,  135 
Western  Un.  R.  R.  Co.  t>.  Wagner, 

381,  397 

Westervelt 0.  Scott,  198 
Weston's  Case,  274 

0.  Bear  River  etc.  Co.  278,  295 

«.  Wiley,  144 


Westphal  v.  Ludlow,  88,  114 
Westzinthus,  in  re.  373,  397, 405 
Wetherell's  App.,  186 
Wharn  v.  Irvin,  210 
Whartley  ».  Tricker,  254 
Wharton  v.  Woodburn,  203 
Wheeler  v.  Faurot,  28 

v.  Guild,  7 

v.  Miller,  283 

t>.  Newbould,  85,  87,  90,  93, 117, 
118,  363,  366 

v.  Rice,  54 

0.  Slocum,  27 

Wheelock  v.  Kost,  282,  283 
Whicher  v.  Hall,  245 
Whipple  v.  Blackington,  11,  95,  100, 
102,  120,  129 

0.  Briggs,  233,  234,  235 
Whistler  v.  Foster,  22,  24,  150 
White  v.  Ault,  239 

v.  Banks,  232 

0.  Bass,  359 

v.  British  Emp.  Ins.  Co.,  488 

v.  Knapp,  214 

v.  Langdon,  433 

v.  Phelps,  90 

v.  Platt,  11 

v.  Railroad  Co.,  43,  47 

0.  Salisbury,  264 

0.  Schuyler,  341 

0.  Springfield  Bank,  27 

c.  Sutherland,  170 

0.  Walker,  244 . 

v.  Wright,  134,  141 
Wliitehead  0.  Root,  348 
White  Mountain  R.  R,  Co.  0.  Bay 
State  Iron  Co.,  79,  120, 125, 
132 

Whitfield  0.  Savage,  258 
Whitin  0.  Paul,  118,  143,  175 
Whiting  0.  Beebe.  229 

v.  Town  of  Potter.  43 
Whitlock  v.  Hay,  412,  416,  419 
Whitney  v.  Beckford,  409,  553 

0.  Cowan,  424 

0.  French,  156 


TABLE  OF   CASES. 


lix 


Whitney  v.  M.  U.  Express  Co.,  116 

v.  Tibbitts,  413 
Whitaker  v.  Kirby,  244 

«.  Sumner,  127 
Whittaker  v.  Brown,  51,  52 

v.  Charleston  Gas  Co.,  114,  117, 

119,  442,  444,  446 
Whittemore  t>.  Gibbs,  144 
Whitten  «.  Wright,  114,  257 
Whitwell  v.  Brigham,  104,  105,  108, 

109,  110 

Wicker  v.  Hoppack,  224 
Wickham  v.  Morehouse,  75,  422,  431 
Wichita  Savings  Bank  v.  A.  T.  &  S. 

F.  R.  R.  Co.,  391 
Wicks  v.  Hatch,  334,  366 

v.  Mitchell,  207 
Wiggin's  App.,  207,  208 
Wiggin®.  Dorr,  98 
Wilber  v.  Lynde,  74 
Wilcocks,  ex  parte,  283 
Wilcox  v.  Fairhaven  Bank,  217, 219, 
238, 239 

«.  Todd,  207,  210 
Wild,  in  re,  135 
Wild  v.  Howe,  248 
Wildrich  v.  Swain,  29,  109 
Wildes  v.  Savage,  88,  257,  259 
Wiley  v.  Knight,  240 

v.  Starbuck,  139 
Wilhelm  v.  Carr,  346,  349,  350 

v.  Schmidt,  109 
Wilkes  v.  Ferris,  413 
Wilkinson  v.  Flowers,  156 

v.  Jeffers,  91,  95 

v.  Simpson,  146 
Williams  v.  Bosson,  33 

v.  Gilchrist,  54 

v.  Hancock,  207 

v.  Ingersoll,  423,  425,  430 

®.  Ins.  Co.,  312 

v.  Jackson,  147,  152 

«.  Little,  23,  28,  87,  164 

v.  Mechanics'  Bank,  275,  295 

v.  Norton,  90 

v.  Owen,  212 


Williams  v.  Price,  442 

e.  Smith,  16,  37,  42,  66,  78,  112 

«.  Sorrell,  192 

v.  Tiedeman,  348,  349,  356 

v.  Tilt,  140 

v.  Walbridge,  54 
Williamson  v.  Champlain,  154 

v.  Ellis,  372 

«.  McClure,  130,  335 
Willis  v.  Farley,  144,  161 

v.  Phila.  &  Darby  Ry.  Co.,  265, 

312,  314,  318 

Willoughby  v.  Comstock,  3,  331 
Wilmerding  v.  Hart,  97 
Wilson  v.  City,  16 

v.  Green,  203 

v.  Hayward,  158 

v.  Little,  4,  90,  93,  118, 129,  264, 
276,  334,  337,  369 

v.  Murphy,  214 

v.  Moore,  302 

®.  Mason,  410 

v.  Richards,  50,  58 

v.  Salamanca,  48 

v.  Senier,  258 

v.  Troup,  195 

v.  Williams,  54 

v.  Wright,  237 
Winans  v.  Hassey  370 
Winchell  v.  Doty  253 
Winne  v.  McDonald  383,  414 
Winship  v.  Bank,  51 
Winslow  v.  Vermont  Ry.  Co.,  394 
Winsmith  v.  Winsmith,  151 
Winsted  v.  Bingham,  144 
Winston  v.  State,  204 
Wise  D.  Charlton,  3 
Wiseman  v.  Vanderpat,  382 
Wiswell  v.  Baxter,  156 
Winters  v.  Belmont  Mining  Co.,  263, 
265,  273,  295,  298,  300,  310 
Winters  v.  Franklin  Bank,  158 
Witherby  v.  Mann,  228 
Winthrop  Savings  Bank  v.  Jackson, 

63,  104,  105 
Wintle  v.  Crowther,  56 


Ix 


TABLE  OF  CASES. 


Winton  0.  Little,  180,  241 
Witmer  0.  Ellison,  249 
Wellington  v.  Sparks.  215 
Wolcott  v.  Heath,  348 
Wood's  App.,  263, 265,  296,  302,  321, 

322,  333 
Wood  v.  Augustine,  156 

0.  Bank,  239 

v.  Fiske,  251 

«.  Hayes,  307,  369 

v.  Jefferson  Co.  Bank,  243 

0.  Leland,  238,  252 

0.  Mathews,  87,  93,  96,  114 

v.  People's  Nat.  Bank,  64 

v.  Robinson,  242 

0.  Sherman,  253 

0.  Smith,  301,  320 

0.  Trask,  158 

v,  Wallace,  424 
Woodruff  0.  Dcpue,  186 

0.  King,  144 

c.  Morristown  Inst.  184, 186, 189 
Woodward  v.  Matthews,  157 
Woods  v.  Nat.  Bank,  180 
Woolford  0.  Dow,  247,  248 
Woolridge  v.  Norris,  223 
Woolsey  v.  Brown,  207 
Woolen  v.  Buchanan,  209,  210 
Wooters  v.  Hollingsworth,  158 
Worcester  Corn  Ex.  Co.,  in  re,  52 
Worcester  Bank  v.  Bank,  75 
Worcester  Nat.  Bank  0.  Cheeney,  14, 

27, 175 

Word  0.  Morgan,  442 
Worden  v.  Salter,  260 
Work  v.  Bennett,  337 

0.  Brayton,  18 

v.  Kase,  34.  36 

Worner  0.  Waterloo  etc.  Society,  214 
Worthington  v.  Torney,  369 
Wren  0  Pierce,  261 
Wright's  App.,  312,  815,  316 
Wright  0.  Antwerp  Pipe  Co.,  303 

0.  Austin,  207.  210,  211 

0.  Campbell,  381 

0.  Crabbs,  361 

0.  Eaves,  144, 173 


Wright  0.  Hooker,  52 

0.  Hunter,  238 

0.  Lang,  245 

0.  Morley.217,  239,  255 

0.  Nat.  Bank.  139 

0.  Northern  Cont.  Ry.  Co.,  394 

0.  Ross,  143,  175,  332 

0.  Simpson,  89,  153 

0.  Soloman,  407 

0.  Troutman,  144 

0.  Whiting,  224 
Wrotten  0.  Armat,  64 
Wyckoff  0.  Anthony,  62,  97,  131 
Wyeth  0.  Bank.  12 
Wylie  0.  Bank,  63 
Wyman  0.  Cochrane,  107 
Wyman  0.  Robinson,  221 
Wyne  0.  Macdonald,  397 
Wynkoop  0.  Leal,  306,  327,  369 
Wythes  0.  Laboucherc,  203 
Wulff  0.  Jay,  239,  240 
Yarborough  v.  Bank  of  England,  312 
Yarnell  0.  Anderson,  58 
Yates  0.  Donaldson,  203 
Yeatman  0.  Savings  Inst.,  278,  329 
Yenni  0.  McNamee,  412,  421 
Yerger  0.  Barz,  168 

0.  Jones,  302 

Yerkes  0.  Salomon,  349,  350,  355 
York  0.  Landis,  212 
York  County  Ins.  Co.  0.  Brooks,  246 
Yorkshire  Ry.  Co.  0.  Maclure,  295 
Young,  ex  parte,  221,  348,  355 
Young  0.  Northern  111.  Assn.,  16,  17 

0.  Grote,  315,  316 

0.  Hobbs,  28.  29 

0.  Lee,  23.  27,  65, 92 

0.  Miller,  145, 147,  160 

0.  Morgan,  214 

0.  Scott,  407 
Youngc,  ex  parte,  202 
Zabriskie  0.  Railroad  Co..  44, 180, 260 
Zimplcman  0.  Vcedcr,  87,  90, 96. 117. 

118,  125. 175.  183 
Zook  0  Clcmmcr,  212 
Zuchter  0.  Boehm,  154 
Zuel  v.  Bowen,  55 


PART  I. 

NEGOTIABLE  COLLATERAL  SECURITIES, 

CHAPTER  I. 

NEGOTIABLE  COLLATERAL  SECURITIES. 

§1.  The  use  of  negotiable  instruments  as  collateral  security. 

2.  Definition  of  the  terms  "  collateral  security"  and  "  collateral." 

3.  Recital  of  collateral  securities  in  principal  note. 


§1.  THE  USE  OF  NEGOTIABLE  INSTRUMENTS  AS  COLLAT- 
ERAL SECURITY. — The  use  of  negotiable  instruments,  as  bills 
of  exchange  and  promissory  notes  made  by  third  persons,  as 
collateral  security  for  the  payment  of  the  negotiable  promis- 
sory note  or  other  obligation  of  the  pledger,  where  the  same 
are  indorsed,  where  required,  or  by  delivery  merely,  where 
indorsed  in  blank  and  made  payable  to  bearer,  so  that  the 
pledgee  becomes  a  party  thereto,  conveys  the  absolute  legal 
title  to  such  collateral  securities,  and  if  such  transfer  be 
made  bona  fide,  before  maturity,  for  value,  without  notice  of 
equities,  and  in  the  usual  course  of  business,  the  pledgee's 
title  cannot  be  impeached.  Holding  the  legal  title  to  the 
negotiable  collateral  securities,  a  bona  fide  pledgee  for  value 
stands  in  the  same  position  as  to  rights,  privileges  and 
equities,  as  a  bona  fide  purchaser  for  value  of  negotiable 
instruments.  The  pledgee,  with  title,  is  a  purchaser  for 
value,  and  is  entitled  as  any  bona  fide  holder  for  value  to 
enforce  the  collection  of  such  negotiable  collateral  secu- 
rities as  against  the  parties  to  such  notes  for  the  full 


2  NEGOTIABLE    COLLATERAL   SECURITIES. 

» 

amount  of  their  face.  The  presumption  of  law  in  favor  of 
the  pledgee  is,  that  he  gave  full  value  for  them,  or  that  he 
received  them  from  some  holder  for  value,  to  collect  them, 
and  to  pay  the  principal  debt  at  maturity  from  the  proceeds, 
and  hold  any  surplus  for  the  benefit  of  the  pledger,  or 
persons  beneficially  interested  in  such  proceeds.  The 
transaction  by  which  the  negotiable  collateral  securities 
pass  to  the  lender,  vests  the  legal  title,  and  the  only  right 
of  the  pledgor  is  to  redeem  his  collateral  securities  upon 
payment  of  the  debt,  or  to  be  paid  any  surplus  arising  from 
their  collection,  after  satisfaction  of  the  pledgee's  claims. 
By  commercial  usage,  not  only  negotiable  instruments,  but 
also  documents  of  title,  quasi  or  non-negotiable  in  character, 
are  available  as  collateral  security  for  loans  of  money,  or  dis- 
counts of  paper.  The  terms  adopted,  both  in  commercial  cir- 
cles and  by  jurists,  describing  such  transactions — "  collateral 
security"  and  "  collateral,"  as  distinguished  from  a  mere 
pledge — illustrate  the  development  of  this  special  branch  of 
the  law,  and  emphasize  the  importance  of  the  questions 
relative  to  the  rights,  duties,  and  liabilities  incurred  by 
parties  to  such  contracts  of  loan,  secured  by  collateral.1 

§2.  DEFINITION  OP  THE  TERMS  "COLLATERAL  SECU- 
BITY"  AND  "COLLATERAL."  —  "Collateral  security"  is  a 
separate  obligation,  as  the  negotiable  bill  of  exchange  or 
promissory  note  of  a  third  person,  or  document  of  title,  or 
other  representative  of  value,  indorsed  where  necessary,  and 

1  Railroad  Co.  v.  National  Bank,  Dillingham,  73  Me.  59  ;  Pierce  v. 
102  U.S.  14;  Swift  v.  Smith,  Ib.  442;  Faunce,  49  Mo.  507;  Miller  v.  Pol- 
Collins  v.  Gilbert,  94  U.  S.  753  ;  lock,  99  Pa.  St.  202  ;  Richardson  v. 
Michigan  Bank  v.  Eldred,  9  Wall.  Rice,  9  Tenn.  290 ;  Currie  v.  Misa, 
544,  553 ;  Gibson  v.  Stevens,  8  How,  L.  R.  10  Ex.  153  ;  B.  c.  aff.  1  App. 
384;  Manhattan  Co,  v.  Reynolds,  2  554;  Leask  v.  Scott,  L.  R.  2  Q.  B. 
Hill,  140;  Bank  of  New  York  c.  D.,  376  ;  Gill  v.  Continental  Gas  Co. 
Vanderhorst,  32  N.  Y.  553;  Crocker  L.  R.  7  Ex.  332;  ex  parte  Golding, 
«.  Crocker,  81  Ib.  507,  510;  Farwell  L.  R.  13  Ch.  D.  634;  France  v. 
9.  Importers'  Bank,  90  Ib.  483;  Chic-  Clark,  L.  R.  22  Ch.  D.  830;  General 
opee  Bank  v.  Chapin  8  Met.  40  ;  De-  Credit  Co.  v.  Glegg,  Ib.  549  ;  Kemp 
Wolft>.G!irdner,|12Cush.  19,  25;  Lo-  t>.  Falk,  L.  R.  7  App.  582  (Black- 
gan  v.  Smith,  G2  Mo.  455 ;  Rice  v.  burn,  Lord). 


DEFINITION  AND   RECITAL.  3 

delivered  by  a  debtor  to  his  creditor,  to  secure  the  pay- 
ment of  his  own  obligation,  represented  by  an  independent 
instrument.  Such  collateral  security  stands  by  the  side  of 
the  principal  promise  as  an  additional  or  cumulative  means 
for  securing  the  payment  of  the  debt  .*  The  transfer, 
however,  of  the  debtor's  own  negotiable  promissory 
notes  as  collateral  security  for  the  payment  of  other  notes 
made  by  him,  does  not  come  within  any  definition  of  collat- 
eral security;2  nor  where  the  proposed  collateral  security 
is  a  negotiable  promissory  note  of  a  person  already  liable  on 
a  bill  of  exchange,  the  payment  of  which  is  to  be  secured.3 
"  Collateral,"  in  the  commercial  sense  of  the  word,  is  a 
security  given  in  addition  to  a  principal  obligation,  and  sub- 
sidiary thereto ;  and  is  used  as  generally  descriptive  of  all 
choses  in  action,  as  distinguished  from  tangible  personal 
property,  including  the  usual  negotiable  instruments  of 
commerce;  the  quasi-negotiable  securities,  as  certificates  of 
stock,  bills  of  lading,  and  warehouse  or  cotton  receipts;  and 
the  divers  non-negotiable  choses  in  action  and  equitable 
assignments  available  as  collateral. 

§3.  RECITAL  OP  COLLATERAL  SECURITIES  IN  PRINCI- 
PAL NOTE. — The  regular  course  of  banks  and  bankers  in  dis- 
counting commercial  paper,  to  receive  the  promissory  notes 
of  third  persons  as  collateral  security  for  the  payment  of  the 
principal  note  given  by  their  customers,  is  a  recognized  form 
of  collateral  security.4  Upon  asking  for  such  discount,  it  is 

•Judge  Redfield,  in  his  note  to  120;  Shoemaker  v.  National  Bank,  2 

LeBreton  v.  Pierce,  1  Am.  Law  Reg.  Abb.  (U.  S.)  R.  416,423;  Loclirane  v. 

(N.  S),  38,  says:    "The  etymology  Soloman.  38  Ga.  292;  in  re  Athill, 

of  collateral  security  indicates  that  L.  R.  16  Ch.  D.  223.    Bouv.  Law 

it  is  something  running  along  with,  Diet.  331. 

and  as  it  were  parallel  to,  something  *  Miller  v.  Lamed,  103  111.  562. 

else  of  a  similar  character.    It  is  col-  •  Atlantic  Bank  «.  Boies,  6  Duer, 

lateral  to  the  original  indebtedness."  583. 

Other  definitions  are  found  in  Munn  4  Michigan  Bank  v.  Eldred,  9  Wall. 

v.  McDonald,  10  Watts,  273;  Kram-  544,  553;   Railroad  Co.  v.  National 

er  v.  Sandford,  4  W.&  S.  328;  Cham-  Bank,  102  U.  S.  14.;  ex  parte  Scho- 

bersburg  Ins.  Co.  «.  Smith,  11  Pa.  St.  field,  L.  R.  12  Ch.  D.  337,  348. 


NEGOTIABLE   COLLATERAL  SEC^HITIES. 


usual  for  the  pledger  in  his  principal  note  to  recite  therein 
the  collateral  securities  deposited,  and  the  terms  and  manner 
in  which  the  same  may  be  sold  or  made  otherwise  available, 
upon  default.1  Such  a  recital  does  not  affect  the  negotia- 
bility of  the  principal  note,  as  the  amount  to  be  paid,  the 
time,  and  the  person  to  whom,  remain  certain.2  Where  a 
note,  pledged  as  collateral  security,  recites  on  its  face  that 
it  is  "  to  be  held  as  collateral  security  for  the  payment  of 
certain  notes  "  of  third  persons,  it  is  non-negotiable,  even 
in  the  hands  of  a  bona  fide  indorsee,  for  value,  lacking  cer- 
tainty in  amount,  and  being  a  contingent  promise.3 


i«$ 188—.    * 

*  *  after  date  *  *  promise  to 
pay  to  the  order  of  *  *  *  at  its 
office  in  the  city  of  *  *  *  State 
of  *  *  *  *  *  *  dollars  for 
value  received,  with  interest  at  the 
rate  of  *  *  *  per  cent,  per  an- 
num after  due.  As  collateral  security 
for  the  payment  of  this  note,  *  *  * 
have  deposited  with,  and  hereby 
pledge  to  said  bank  *  *  *  and 
******  hereby  give  the 
said  *  *  *  ,  its  assign  or  assigns* 
authority  to  sell  the  same,  or  any 
part  thereof,  on  the  maturity  of  this 
note,  or  at  any  time  thereafter,  or 
before,  in  the  event  of  the  said  se- 
curities depreciating  in  value,  at 
public  or  private  sale,  without  ad- 
vertising the  same,  or  demanding 
payment,  or  giving  notice,  and  to 
apply  so  much  of  the  proceeds  there- 
of to  the  payment  of  this  note  as 
may  be  necessary  to  pay  the  same, 
with  all  interest  due  thereon,  and 
also  to  the  payment  of  all  expenses 
attending  the  sale  of  the  said  *  *  * 
and  in  case  the  proceeds  of  the  sale 
of  the  said  *  *  *  shall  not  cover 


the  principal,  interest  and  expenses, 

*  *    *    promise  to  pay  the  defi- 
ciency forthwith   after  such   sale; 
and   *    *    hereby  waive  and  release 
the  holder  of  this  note  from  all  duty 
and  diligence  to  sell,   enforce,  or 
collect  any  collateral  held  with  this 
note.    And  it  is  hereby  understood 
and  agreed  that  the  collateral  upon 
this  note  shall  be  applicable  to  any 
other  note  or  claim  held  by  the  said 

*  *    or  the   legal   holder  hereof, 
against    *    *    ,  and  in  case  of  the 
exchange  of  or  addition  to  the  col- 
lateral  above    described,  the    pro- 
visions of  this  note  shall  extend  to 
such  new  or  additional  collateral. 

*  *    /> 

*  Willoughby  t>.  Comstock,  3  Hill, 
389;  Cook  <c.  Satterlee,  6  Cow.  108; 
Arnold  v.  Rock  River  R.  R.  Co.  5 
Duer,  207;  National  Bank  v.  Faut, 
50  N.  Y.  475 ;  Banning  v.  Markham, 
12  Gray,  454;  Stultz  ».  Silva,  119 
Mass  139;  Towwe  v.  Rice,  122  Ib. 
67.  Fancourt  v.  Thome,  9  A.  &  E. 
812;  Bolton  v.  Dugdale,  4  B  &  Ad. 
619;  Wise  v.  Charlton,  4  A  &  E.  786. 

•Haskell  v.  Lamber,  16  Gray,  592. 


THE   ACT  OF   PLEDGE. 


CHAPTER     II. 


THE     ACT     OP     PLEDGE     OF     NEGOTIABLE     COLLATERAL 

SECURITIES. 

§4.  By  indorsement  of  negotiable  bills  and  notes. 

5.  Where  indorsed  for  collection  or  for  a  special  purpose. 

6.  Pledge  of  negotiable  instruments  unindorsed. 

7.  By  delivery  when  payable  to  bearer,  or  indorsed  in  blank. 

8.  And  in  the  case  of  negotiable  bonds  and  coupons. 

9.  Delivery  of  negotiable  instruments  in  pled*e  essential. 

10.  Delivery  may  be  to  third  party,  by  agreement. 

11.  The  possession  of  collateral  securities  necessary  to  sustain  pledge. 

12.  Applications  of  the  rule  as  to  possession. 

13.  Casey  v.  Cavaroc. 

14.  Collateral  securities  follow  renewals  of  principal  note. 

15.  Exchange  or  substitution  of  collateral  securities. 


§4.  BY  INDORSEMENT  OP  NEGOTIABLE  BILLS  AND 
NOTES. — The  bona  fide  indorsee  of  negotiable  bills  and 
notes,  receiving  the  same  in  the  usual  course  of  business, 
before  maturity,  as  collateral  security,  for  a  valuable  consid- 
eration, without  notice,  or  if  indorsed  in  blank  or  payable  to 
bearer  by  mere  delivery,  is  a  holder  for  value,  and  as 
much  Avithin  the  protection  and  benefits  of  the  law-mer- 
chant as  if  the  transfer  were  by  way  of  absolute  sale.1  The 

'Railroad  Company  v.  National  500;  Taylor  v.  Williams,  11  Met.  44; 

Bank,  102  U.  S.  14,  87;  Oates  v.  Na-  Logan  v.  Smith,  62  Mo.  455  ;    Sav- 

tional  Bank,  100  Ib.  239,  247,  248;  ings  Assn.  v.   Hunt,   17  Kan.  532  ; 

Manhattan  Co.  v.  Reynolds,  2  Hill,  Best  v.  Crall  23  Ib.  484;  Allen  v.  King, 

140;  Poughkeepsie  v.  Hasbrouck,  6  4  McLean  C.  C.  128.     The  only  cases 

N.  Y.  230;  Nelson  ».  Eaton,   26  Ib.  contra  are  in  New  Hampshire:  Jen- 

410;   City  Bank  v.  Perkins,  29  Ib.  ness  v.  Bean,  10  N.  H.  266 ;  Williams 

554;  Nelson  v.  Wellington,  5  Bos.  v.  Little,  11  Ib.  60;  Clement  v.  Ever- 

W.   187  ;    Munn  v.   McDonald,   10  ett,  12  Ib.  317 ;  see  Tucker  v.  Bank, 

Watts,  273  ;  Hunt «.  Nevers,  15  Pick.  58  Ib.  83.  Peacock  v.  Purcell,  14  C.  B. 


6  NEGOTIABLE  COLLATERAL  SECURITIES. 

holder  of  such  bill  and  notes  negotiated  as  collateral,  secur- 
ity in  either  case,  assumes  the  responsibility,  if  not  paid 
when  due  and  payable,  of  making  demand  of  payment  and 
of  giving  notice  of  non-payment,  as  may  be  necessary. 
The  assumption  of  this  liability  by  the  holder  of  negotiable 
paper  as  collateral  security,  is  a  valuable  consideration 
of  itself  to  support  his  position  as  a  holder  for  value, 
in  the  usual  course  of  business,  in  cases  where  there 
has  been  a  present  advance,  or  a  surrender  of  other  secur- 
ities, or  a  valid  antecedent  debt,  or  other  valuable  consider- 
ation.1 

§5.  WHERE  INDORSED  FOR  COLLECTION,  OR  FOR  A 
SPECIAL  PURPOSE. — The  indorsement  of  a  bill  of  exchange, 
or  note  of  a  third  persoh,  deposited  in  a  bank,  may  be  shown 
to  have  been  made  conditionally,  or  for  a  special  purpose, 
and  not  with  the  intention  to  convey  the  title.  It  may  be 
shown  that  such  indorsement  was  made  simply  to  enable 
the  bank,  or  other  agency,  to  make  collection  thereof  for 
the  customer.  In  such  cases,  the  title  to  the  securities 
remains  in  the  customer,  and  in  the  event  of  the  bank's 
insolvency,  the  specific  notes  may  be  recovered,  or  the  avails 
thereof.2  The  negotiation,  however,  of  bills  or  notes,  for 
value,  before  maturity,  by  the  person  or  bank  holding  the 
same  for  purposes  as  stated,  to  persons  paying  value  therefor 
in  good  faith,  without  notice  of  equities,  defeats  the  claim 
of  the  owner  to  recover  his  property.3  If  the  paper  be 

N.  S.  728 ;  in  re  European  Bank,  L.  Bon  v.  Barney,  1  la.,  531 ;  Atkinson 

R.  8  Ch.  41;  Collins  v.  Martin,  1  B.  «.    Brooks,  26  Vt.    584  ;    Moore  «. 

&  P.  648;  Palmer  v.  Richards,  15  Hall,  48  Mich.  143;  Boyd  v.  Corbitt, 

W.  Jur.  41.  37  Ib.  52 ;  Balback  v.  Frelinghuysen, 

1  Railroad  Co  e.  Nat.  Bank,  102  15  Fd.  Rep.  675.  s.  c.  15  Rep.  518. 

U.  S.  14.  »  Ex  parte  Twogood,  supra ;    ex 

*  Ex  parte  Twogocd,  19  Ves.  231 ;  parte  Schofield,  L.  R.  12  Ch.  D.  337. 

In  re  Boys,  L.  R.  10  Eq.  467;  Solo-  Palmer  v.  Richards,  1  E.  L.  &  E. 

mon  v.  Bank  of  England,  15  East.  529;  15  Jur.  41 ;   Lloyd  «.   Howard 

135;  DC  La  Chaumette  v.  Bank  of  20  L.  J.  Q.  B.  1 ;  Balback  v.  Freling- 

England,  9  B.  &  C.  208;   Scott  v.  huysen,  supra. 
Ocean  Bank,  23  K  Y.  289 ;   John- 


THE  ACT   OP   PLEDGE.  7 

taken  after  maturity,  although  value  is  paid  therefor,  it 
is  subject  to  equities.1  The  presumption  is  that  a  bill  of 
exchange  given  for  a  certain  sura,  and  payable  at  a  certain 
day,  was  negotiated  for  a  present  advance,  and  a  banker  is 
not  allowed  to  retain  the  bill  of  exchange  as  a  continuing 
guaranty,  without  proof  that  such  was  the  agreement.3 

§6.  PLEDGE  OF  NEGOTIABLE  INSTRUMENTS,  UNIN- 
DORSED. — A  simple  delivery  of  negotiable  promissory  notes 
or  bills  of  exchange  as  collateral  security,  where  indorse- 
ment is  required,  so  that  the  title  to  the  securities  still 
remains  in  the  pledgor,  vests  in  the  pledgee  a  contingent 
equitable  interest  only,  or  in  the  proceeds  thereof,  subject 
to  the  prior  equities  of  third  persons  as  against  the  pledger.3 
The  pledgee,  under  such  circumstances,  is  the  mere  agent 
of  the  pledgor,  and  no  reason  exists  for  excluding  equities 
existing  against  the  pledgor.4  Such  collateral  securities 
stand  upon  the  same  footing  as  non- negotiable  paper, 
subject  to  all  defenses,  equities  and  infirmities  existing  at 
the  time  of  assignment  between  the  payee  and  the  maker, 
whether  attached  to  the  instrument  or  not.5  Where  a  bill 
of  exchange  was  deposited  as  collateral  security,  without 
proper  indorsement,  and  the  pledgor  became  bankrupt,  the 
pledgee  was  given  the  aid  of  equity  to  require  the  pledger's 
assignee  to  make  the  necessary  indorsement.6  Under  the 
Louisiana  statutes,  delivery  of  negotiable  securities  is  suffi- 
cient to  constitute  a  valid  act  of  pledge,  and  a  deposit  of 
bills  of  exchange,  bills  receivable,  notes,  and  other  securities, 
unindorsed,  is  supported.7 

1  Foley  v.  Smith,  6  Wall.  493.  «  Simpson     ».     Hall,    47    Conn. 

*  In  re  Boys,  L.  R.  10  Eq.  467.  417. 

.  •  Snow  D.  Fourth    Nat    Bank,   7  «  Ex  parte  Rice,  3  M.    D.  &  D. 

Robt.  479.  586. 

4  Palmer  v.  Richards,  1  E.  L.  &  E.  '  Casey  v.  Schneider,  95  U.  S.  497; 

529 ;  De  La  Chaumette  v.  Bank  of  Partee  v.  Corning,  9  La.  Ann.  539 ; 

England,  9  B  &  C.  208;  Atkinson  v.  Act  of  Louisiana,  March  15,  1855; 

Brooks,  26  Vt.  569;  Allen  t>.  King,  Rev.  Stats.  Lou.  1876,  §  2904. 
4  McLean,  128. 


8  NEGOTIABLE  COLLATERAL  SECURITIES. 

§7.  BY  DELIVERY  WHEN  PAYABLE  TO  BEARER,  OR 
INDORSED  IN  BLANK. — The  possession  of  valid  negotiable 
instruments  indorsed  in  blank,  or  made  payable  to  bearer, 
is  prima  f;icie  evidence  that  the  holder  has  full  title  thereto. 
This  rule  is  applied  in  favor  of  the  holder  of  negotiable  in- 
struments, so  drawn  or  indorsed,  as  collateral  security.1 
"A  note  (as  said  by  Judge  Story,  in  Bullard  v.  Bell)2  is 
often  said  to  be  assignable  by  delivery ;  but,  in  correct  lan- 
guage, there  is  no  assignment  in  the  case.  It  passes  by 
mere  delivery  ;  and  the  holder  never  makes  any  title  by  or 
through  any  assignment,  but  claims  merely  as  bearer.  The 
note  is  an  original  promise  by  the  maker  to  pay  any  person 
who  shall  become  the  bearer ;  it  is  therefore  payable  to  any 
person  who  successively  holds  the  note  bona  fide,  not  by 
virtue  of  any  assignment  of  the  promise,  but  by  an  original 
and  direct  promise,  moving  from  the  maker  to  the  bearer." 

§8.  AND  IN  THE  CASE  OP  NEGOTIABLE  BONDS  AND 
COUPONS. — Negotiable  bonds,  payable  to  bearer  or  "  holder," 
issued  under  statutory  authority,  by  municipalities  or  cor- 
porations, are  negotiable  instruments,  the  title  to  which 
passes  by  delivery.  The  delivery  of  such  bonds  by  the 
pledgor  to  the  pledgee,  as  collateral  security,  before  ma- 

1  Railroad  Company  0.  Nat.  Bank,  259;  Coopers.  Thompson,  ISBlatchf. 

supra,  p.  38 ;  Bank  of  Kentucky  v.  434  ;   Coe  t.    Railroad    Co.,  19   Ib. 

Wister,    2  Pet.  326  ;    Goodman  v.  522 ;   Fitch  v.  Jones,  5  £1.  &   Bl. 

Simomls,  20  How.  343,  365  ;  Wheel-  238;  Smith  v.  Braine,  16  A.  &  EL 

er  t>.  Guild,  20  Pick.  545;  Magee  v.  N.  S.  242 ;  Hall  v.  Featherstone,  3  H. 

Badger,   34  N.  Y.  247;  Maitland  *>.  &  N.  282 ;  Chitty,  Bills,  229,  says: 

Citizens  Nat.  Bank,  40  Md.  540,  564;  "A  blank   indorsement  constitutes 

Blanchard  v.  Stevens,  3  Cush.  162,  by  itself    a    complete  and  perfect 

167;    Stoddard  v.    K initial  1,    6    Ib.  transfer  of  the  interest  in  the  bill  or 

469;  Pettee  «.  Prout,  3  Gray,  502;  note,  and  without  the  addition   of 

Way  v.  Richardson,  Ib.  412;  Stone  any  other  words  will  vest  the  right 

v.  Brown,  54  Tex.  330;  Thomson  t.  of  action  and  all  other  rights  in  the 

Lee  County,  3  Wall.  881;   Bushncll  transferee  and  subsequent  holders." 
«.  Kennedy,  9  Ib.  391;  City  of  Lex-          '  1  Mason,  251;  Town  of  Thomp- 

ingtou  v.  Butler,  14  Ib.  293 ;  Town  son  t>.  Perrine,  106  U.  S.  259. 
of  Thompson  «.  Perrine,  106  U.  S. 


THE   ACT   OF   PLEDGE.  9 

turity,  for  a  valuable  consideration,  vests  the  full  legal  and 
equitable  title  in  the  latter.1  The  same  rule  applies  to 
dissevered  coupon  notes  or  warrants  issued  with  bonds  pay- 
able to  bearer.  When  separated  from  the  bond,  such  cou- 
pons cease  to  be  mere  incidents  of  the  bonds,  and  become 
independent  negotiable  instruments,  the  title  to  which 
passes  by  delivery.2 

§9.  DELIVERY  OP  NEGOTIABLE  INSTRUMENTS  IN 
PLEDGE  ESSENTIAL. — Delivery  of  negotiable  instruments, 
to  be  held  as  collateral  securities,  is  an  essential  condition 
of  the  validity  of  the  act  of  pledge.  In  this  respect  there 
is  no  difference  between  a  pledge  of  personal  property  and 
one  of  negotiable  securities.3  This  rule  is  enforced  under 
the  Louisiana  code,  where  a  firm,  having  made  certain  ac- 
commodation indorsements  upon  the  promise  of  receiving 
security,  were  asked  to  call  at  the  office  of  the  obliged 
party  for  the  bills,  but  neglected  to  do  so  until  the  pledgor 
deceased.  There  having  been  no  delivery,  the  accommoda- 
tion indorsers,  although  liable  upon  the  bills,  had  no  claim 

»•  Goodman  v.   Simonds,  20  How.  *  Walnut  v.  Wade,  103  U.  S.  696; 

452;    Murray  v.  Lardner,  2  Wall.  Clark  «.  Iowa  City,  20  Wall.   583; 

110;  Jerome  v.  McCarter,  94  U.  S.  Aurora    City    v.    West,  7    Ib.  82; 

734;  Hotchkiss  v.  National  Banks,  Thompson  v.  Lee  County,  3  Ib.  327; 

22  Wall.  354;  Hackett  v.  Ottawa,  99  Cromwell  v.  County  of  Sac,  94  U.  S. 

U.  S.  86;  Ottawa  v.  National  Bank,  351,  362;  Brooklyn  v.  Ins.  Co  99  U. 

105  Ib.  342;  Robert  v.  Bolles,  101  Ib.  S.  362;  County  of  Beaver  v.  Arm- 

119;  Ins.  Co.  v.  Bruce,  105  Ib.  328;  strong,  44  Pa.  St.  63;    Nat.  Exch. 

State  of  Illinois  v.  Delafield,  8  Paige,  Bank  v.  Hartford,  etc.,  Ry.  Co.  8  R. 

527;  s.  c.  2  Hill,  159,  177;  Bank  of  I.  375;  Johnson  v.  Stark  Co.,  24  111. 

Rome    v.  Village,    19    N.    Y.    20;  75;  Town  of  Eagle  v.  Kohn,  84  Ib. 

Brainard  v.  N.  Y.  etc.  R.  R.  Co.  25  292;   Pettee  «.  Prout,  3  Gray,  502; 

N.  Y.  496;    Royal  Bank  v.  Grand  Evertson  v.  National  Bank,  66  N.  Y. 

Junction    Ry.   Co.  100  Mass.   444;  14;  Haven  v.  Railroad  Co.,  109  Mass. 

Morris  Canal  and  Banking  Company  88. 

c.  Lewis,  12  N.  J.  Eq.  322;  same  v.  »  Casey  v.  Schneider,  96  U.  S.  497; 

Fisher,  9  Ib  667;  Johnson  v  County  Huker  v.  Bullard.  2  La.  Ann.  338; 

of  Stark,  24  111.  75;  Third  National  Partie  c.  Corning,  9  Ib.  539. 
Bank  v.  Boyd,  44  Md.  47;  Gorgier  v. 
Mieville,  3  B.  &  C.  45. 


10  NEGOTIABLE  COLLATERAL  SECURITIES. 

upon  the  proposed  securities.1  Delivery  in  pledge,  where 
the  securities  are  already  in  possession  of  the  person  by 
whom  the  loan  is  to  be  made,  may  be  provided  for  by  ver- 
bal agreement.2  A  promissory  note  having  been  pledged 
as  collateral  to  secure  the  payment  of  a  debt,  which  was  af- 
terwards paid,  the  collateral  note  remaining  in  the  hands  of 
the  pledgee,  a  letter  from  the  pledger  stating  that  he  had 
arranged  for  an  extension  of  time,  and  asking  the  pledgee 
for  time  upon  another  debt,  to  hold  the  collateral  note 
as  security  therefor,  is  an  actual  pledge,  and  not  a  mere 
offer  to  pledge,  delivery  and  possession  to  the  pledgee  hav- 
ing theretofore  been  made.3  And  notice  to  a  pledgee, 
holding  securities  for  a  debt  less  than  the  value  thereof,  of 
a  pledge  of  the  surplus,  is  sufficient  to  make  a  valid  con- 
tract.4 

§10.  DELIVERY  MAY  BE  MADE  TO  THIRD  PERSON,  BY 
AGREEMENT. — Such  delivery  of  negotiable  instruments  as 
collateral  security  may,  by  agreement  of  the  parties,  be 
made  to  a  third  person.  Such  delivery  is  sufficient  to 
constitute  a  valid  pledge.5  The  negotiable  collaterals 
should  be  properly  indorsed  before  delivery  to  such  third 
person,  so  that  upon  default  in  payment  of  the  principal 
debt,  the  pledgee  may  be  able  to  enforce  their  payment.6 
Where  bills  receivable  were  thus  placed  in  posession  of  a 
third  party,  to  hold  as  collateral  security  for  the  benefit  of 
the  pledgee,  and  exchanges  of  such  collaterals  were  made, 
and  a  new  note  given,  and  upon  the  insolvency  of  the  pled- 
ger the  collaterals  were  handed  to  the  pledgee,  his  right  of 


1  D'Meza's  Succ.  26  La.  Ann.  35;  «  Portal  is  t>.  Tctlcy,  L.  R.   5  Eq. 

Lou.  Ilev.  Stats.  1,876.  §2  904.  140. 

*  Van  Blarcom  v.  Broadway  Bank,  '  Rev.    Civ.     Code,     Lou.     Art. 
87  N.  Y.  540;  Brown  v.  Warren,  43  3162. 

N.  H.  430;  Sanders  v.  Davis,  13  B.  'Bank  of    Chenango  0.  Hyde,  4 

Monr.  432.  Cow.  567. 

•  Providence  Thread    Co.  t>.  Al- 
drick,  12  R.  I.  77. 


THE  ACT   OF   PLEDGE.  11 

recovery  against- the  parties  thereto  was   fully  sustained, 
notwithstanding  a  claim  that  the  loan  itself  was  illegal.1 

§11.  THE  POSSESSION  OF  COLLATERAL  SECURITIES 
NECESSARY  TO  SUSTAIN  PLEDGE. — The  holder  of  negotia- 
ble instruments  as  collateral  security,  receiving  the  same  so 
as  to  become  a  party  thereto,  does  not  lose  his  right  and 
title  thereto,  nor  to  the  proceeds  thereof,  by  a  redelivery  of 
the  same  to  the  pledgor  where  such  a  delivery  is  made  with 
the  intention  or  upon  the  agreement  that  the  pledgor  shall 
proceed,  for  and  on  behalf  of  the  pledgee,  to  make  collec- 
tion thereof,  or  do  some  other  proper  and  necessary  act  in 
respect  thereto.  Where  collection  of  collaterals  is  the  ob- 
ject, the  pledgor  is  regarded  as  the  representative  or  agent 
of  the  pledgee.  He  acts  in  a  fiduciary  character,  and  the 
funds  which  he  may  collect  upon  such  collaterals,  are  the 
property  of  the  pledgee,  to  be  credited  upon  the  principal 
debt.2  The  redelivery  of  negotiable  securities  to  the  pled- 
gor, with  the  intention  not  only  to  facilitate  collection 
thereof,  but  also  under  an  agreement  authorizing  him  upon 
redelivery  to  exchange  or  substitute  other  collaterals,  the 
exchange  being  made  several  times,  and  the  principal  notes 
being  also  renewed,  does  not  affect  the  title  to  the  securities 
vested  in  the  pledgee  by  proper  indorsement.3 


1  City  Bank  v.  Perkins,  29  N.  T.  by  parties  in  Ohio,  were  pledged  as 
554.  collateral    security    in  New  York, 

2  White  v.    Platt,  4   Dcnio,  269;  properly  indorsed.    They  were  re- 
Hays  V.  Riddle,  1  Sandf .  248 ;  Pier  delivered  to  the  pledgor,  to  be  taken 
«.  Bullis,  48  Wis.  429;  Whipple  v.  to  Ohio,  there  to  be  collected  if  pos- 
Blackington,  97  Mass.  476;  Tiffany  sible,  or  to  obtain  security  for  their 
«.  Boatmen's  Inst.  18    AVall.    375 ;  payment.     A  delivery  for  such  pur- 
Clark  1).  Iselin,  21  Ib.  360 ;  Dodge  v.  pose  did    not    affect    the  pledgee's 
Bank,  2  MacAr.  420;  Hurst  v.  Coley,  claim  to  the  notes,  or  the  money 
15  Fed.  Rep.  645;  Stern  v.  Germania  collected,  to  the  extent  of  the  debt 
Nat.  Bank,  34  La.  Ann.  1119.     In  for  which  the  notes  were  pledged. 
White  i\  Platt,    supra,    promissory          •  Clark  v.  Iselin,  21  Wall.  860. 
no'es,  some  of  them  overdue,  mado 


12  NEGOTIABLE  COLLATERAL  SECERITIES. 

§12.  APPLICATIONS  OF  THE  RULE  AS  TO  POSSESSION. 
— Tlie  title  acquired  by  a  bona  fide  pledgee  for  value  of  ne- 
gotiable collateral  securities,  such  as  coupon  bonds,  is  not 
defeated  although  the  act  of  pledge  itself  was  a  misappro- 
priation, where  the  repossession  of  the  securities  was  ob- 
tained by  the  pledger  by  false  representations.  The  equity 
of  the  pledgee,  who  has  advanced  funds  in  good  faith,  is 
preferred  as  against  the  real  owner  of  the  securities.1  But 
the  claims  of  a  pledgee  were  denied  in  a  case  where 
collateral  securities,  held  by  a  bank  as  general  security  for 
all  liabilities,  were  at  different  times,  with  permission  of  the 
cashier,  allowed  to  be  removed  and  others  substituted,  and 
in  one  instance  a  negotiable  security  so  received  was 
sold  by  the  pledger  to  a  bona  fide  purchaser  for  value,  with- 
out notice.  The  security  thus  sold  was  retained  by  the 
pledgor  under  an  agreement  to  collect  the  interest  thereon, 
and  was  returned  by  him  to  the  bank,  and  placed  in  a 
package  with  the  other  securities.  Other  loans  were  made 
upon  the  securities,  but  without  regard  to  this  particular 
security.  Upon  default,  the  bank's  claim  upon  the  collat- 
eral securities  as  against  the  bona  fide  purchaser,  for  value, 
without  notice  of  the  agreement  appropriating  all  collater- 
als deposited  by  the  pledgor  as  security,  was  not  favored.2 
And  the  pledgee,  who  has  redelivered  the  collateral  securi- 
ties held  by  him  to  the  pledgor,  for  the  purpose  that  he  may 
collect  the  same,  may,  upon  a  failure  of  the  pledgor,  upon 
demand,  to  return  such  collaterals  or  to  account  for  the  pro- 
ceeds thereof,  bring  an  action  of  trover,  and  recover  the 
value  of  his  interest  therein,  which  will  be  the  amount  oi 
his  debt  where  the  collaterals  are  greater  in  value,  or  the 
whole  value  where  less.8 

§13.  CASEY  vs.  CAVAROC. —  The  importance  of  con- 
tinued possession,  as  well  as  delivery,  of  negotiable  instru- 

«Ringlingt>.  Kohn,4Mo.  App.59.          "Hurst    «.  Coley,   15    Fed.  Rep. 
•  Wycth  t>.  Bank.  132  Mass.  597.         645. 


THE  ACT  OF  PLEDGE.  13 

merits  used  as  collateral  security,  in  order  to  constitute  a 
valid  act  of  pledge  as  against  third  parties,  is  illustrated  in 
the  case  of  Casey  v.  Cavaroc,1  although  the  decision  itself 
was  based  particularly  upon  the  provisions  of  the  Louisiana 
Code.  A  New  Orleans  bank  arranged  for  the  acceptance  of 
its  bills  of  exchange,  the  obligation  being  guaranteed  by  its 
president,  and  secured  payment  thereof  by  a  pledge  of  its 
bills  receivable,  under  an  agreement  that  they  were  to  be 
held  by  a  banking  firm  of  which  the  president  was  principal. 
A  formal  delivery  of  the  securities,  unindorsed,  was  made, 
but  they  were  at  once  placed  in  a  separate  envelope,  and 
returned  to  the  cashier  of  the  bank.  Collections  were  made 
of  the  securities,  under  the  agreement,  by  the  bank  for  its 
own  benefit,  other  bills  being  substituted,  and  renewals  and 
changes  made,  the  securities  continuing  to  be  kept  sepa- 
rately from  others.  No  entry  of  the  pledge  was  made  on 
the  books  of  the  bank,  and  the  securities  were  included  in 
the  daily  and  monthly  official  statements  of  its  condition. 
The  bank  stopped  payment,  and  after  the  failure  the  pres- 
ident took  possession  of  the  package  of  securities,  obtained 
the  indorsement  of  the  bank  upon  the  bills,  and  then  form- 
ally placed  the  securities  in  the  possession  of  his  firm.  The 
United  States  Supreme  Court  regarded  the  act  of  pledge  as 
not  completed,  and  as  against  creditors  of  the  pledger,  or  a 
receiver  appointed  under  the  National  Bank  Act,  the  con- 
tinued possession  and  control  of  the  securities  by  the  pledger, 
the  representations  contained  in  the  official  statements  of 
its  officers,  and  the  other  facts  stated,  defeated  any  claims 
arising  under  the  contract  of  pledge. 


1  96  U.  S.  467;  Casey  v.  National  sociation  as  security  for  the  pny- 

Bank,  Ib.  492,  and  Casey  v.  Schuch-  ment  of  clearing  bouse  certificates 

ardt,  Ib.  494,  are  to  like  effect,  re-  issued  to  the  bank,  and  were  held  in 

versing  same  cases.  2  Woods  C.  C.  continued  possession  by  the  trus- 

77.    In  Casey  v.  Schneider,  96  U.  S.  tees.    In  this  case  the  claims  of  the 

497,  securities  were  deposited  with  pledgee  were  preferred, 
the  New  Orleans  clearing  house  as- 


14  NEGOTIABLE  COLLATERAL  SECURITIES. 

§14.  COLLATERAL  SECURITIES  FOLLOW  RENEWALS  OF 
PRINCIPAL  NOTE. — The  renewal  of  a  negotiable  bill  or  note 
representing  the  principal  indebtedness,  for  the  payment  of 
which  collateral  securities  have  been  deposited,  does  not 
affect  the  right  of  the  creditor  to  retain  or  enforce  the  col- 
laterals. He  is  equally  entitled  to  the  benefit  of  the  collat- 
eral securities  as  a  means  of  obtaining  payment  of  the  note 
or  bill  given  in  renewal  as  in  the  case  of  .the  original  evi- 
dence of  indebtedness.1  Where  "short"  paper  is  taken  as 
collateral  security,  it  involves  rather  its  renewal,  or  the  sub- 
stitution of  other  securities  than  its  collection.2  But  where 
a  note  is  pledged  as  collateral  security,  under  circumstan- 
ces as  to  the  original  debt  which  fails  to  make  the  pledgee  a 
holder  for  value,  a  renewal  of  the  note  is  subject  to  the  same 
objection.  The  transaction  is  regarded  simply  as  a  prolon- 
gation of  the  original  contract.8 

§1-5.  EXCHANGE  OB  SUBSTITUTION  OF  COLLATERAL 
SECURITIES. — The  exchange  or  substitution  of  other  secur- 
ities for  those  originally  delivered  as  collateral,  has  no  effect 
upon  the  rights  of  the  pledgee,  as  founded  upon  the  original 
contract.  The  surrender  of  the  securities  originally  depos- 

1  Jones  v.  Guaranty  Co.,  101  U.  S.  Bank,  37  Ohio  St.  208;  Reddish  v. 

G22 ;  Worcester  Nat.  Bank  v.  Chee-  Watson,  6  Ham.  (Ohio)  510  ;  N.  H. 

ney,  87  111.  702;  Cherry  v.  Frost,  7  Saviugs  Bank  t>.  Gill,  16  N.  H.  578; 

Lea.  11 ;  Collins  v.  Dawle,  4  Col.  138;  First  Nat.  Bank  v.  Bates,  1  Fed.  Rep. 

Burton  v.  Peterson,  12  Phila.  397;  502;  s.c.  19  A.L.  R  (N.  S.)  560  ;  Ex 

Shaw  v.  Clark,  49  Mich.  384;  Cover  parte  Price,   3  M.  D.  and  D.  586  ; 

v.  Black,  1  Barr,  493;  Lytle's  App.  Combe  v.  Wolff,  8  Bing  156:  Howell 

36  Pa.   St.   131;   Shrewsbury  Sav-  v.  James,  1  Cr.  M.  and  R.  97.    The 

ings  Inst.  App.  94  Pa.  St.  309 ;  Brin-  renewal  of  a  note  given  as  collateral 

kerhoff  v.  Lansing,  4  Johns.  Ch.  65,  security  for  a  pre-existing  debt,  does 

73;  Merchants'  Nat.  Bank  v.  Hall,  not,  in  Maine,  constitute  the  pledgee 

83  N.  Y.  338 ;  Agawam  Bank  v.  Stre-  a  holder  for  value  in  the  usual  course 

ver,  18  Ib.  502;  Davis  v.  Mnynard,  9  of  business.  Nutter  v.  Storer,  48  Me. 

Mass.  242;  Watkins  v.  Hill,  8  Pick.  163;  Bramhall  v.  Beckett,  81  Ib.  265. 

522;    Pomeroy  v.  Rice,   16  Ib.  22;  •  Girard  Fire  Ins.  Co.  v.  Marr,  4(5 

Taber  r>.  Hamilton,  97   Mass.  489;  Pa.  St.  504. 

Patterson  v.  Johnson^  7  Ohio,  225;  '  Roger  v.  Keystone  Nat.  Bank,  93 

Dayton  Nat.  Bank  v.  Merchants'  Nat.  Pa.  St.  248. 


THE   ACT   OF   PLEDGE.  15 

ited  is  a  valuable  consideration  for  the  giving  of  the  new 
securities,  and  the  pledgee  is  as  to  the  latter  a  holder 
for  value,  in  the  usual  course  of  business.1  Such  ex- 
change and  substitution  is  sometimes  of  the  utmost  bene- 
fit to  the  pledger,  and  is  supported  as  against  creditors,  for 
the  reason  that  they  are  not  harmed  thereby.*  Even  after 
a  pledger  is  known  to  be  insolvent,  such  exchange  and  sub- 
stitution of  securities  is  valid,  if  made  bona  fide,  the  pledgee 
receiving  securities  of  no  greater  value  than  those  surren- 
dered.3 The  pledgee  of  negotiable  securities,  made  by  third 
parties,  and  holding  the  title  thereto,  may  exchange  them 
for  other  securities  of  like  value  from  sucli  parties,  without 
the  consent  of  the  pledgor,  although  if  this  be  done,  the 
pledgee  assumes  an  increased  responsibility.  Taking  a 
security  for  a  less  amount,  unless  explained,  renders  the 
pledgee  liable.4  All  that  is  required  of  the  pledgee  in  such 
exchange  of  securities,  is  proper  care  and  diligence.5 

'Clark   v.   Iselin,   21   Wall.  360;  St.  504.    The  court  say:  "  The  mere 

Green  well  v.  Hayden,  78  Ivy.  534;  exchange  of  the  securities  is  not  suffi- 

Cherry  v.  Frost,  7Lea,l,  11;  Black-  cient  to  establish  loss  to  the  owners 

burn  Bldg.  Society  v.  Cunliff,  L.  R.  of  the  collaterals  by  the  exchange." 

22  Ch.  D.  61.  One  of  the  pledgers  informed  the 

8  Sawyer  v.  Turpin,  91  U.  S.  114,  pledgee  that  if  the  securities  were 

121.  exchanged  by  them,  they  "would 

8  Cook    v.  Tullis,  18  Wall.  340;  have  to  renew  them  at  their  risk, 

Tiffany  ».  Boatmen's  Saving  Inst.,  and  take  them  as  cash."    The  court 

Ib.  375;  Clark  ®.  Iselin,  21  Ib.  360;  say:  "  This  warning  does  not  estab- 

Watson  v.  Taylor,  Ib.  378;  Burnhisel  lish  ipse  facto  a  loss  by  reason  of  the 

v.  Firman,   22  Ib.    170;  Sawyer  v.  exchange.     They    could    not    thus 

Turpin,   91  U.   S.    114,  121;  in  re  change  the  terms  of  the  pledge." 

Swenk,  9  Rep.  643;  Stevens  v.  Elan-  *  Bank  of  U.  S.  v.  Peabody,  20  Pa. 

chard,  3  Cush.  169;  Abbott  v.  Pom-  St.  454;  Muirhead  v.  Kilpatrick,  21 

fert,  1  Bing.  N.  C.  462.  Ib.  237;  Seller  v.  Jones,  22  Ib.  423; 

4  Girard  Ins.  Co.  v.  Marr,  46  Pa.  Girard  Life  Ins.  Co.  v.  Marr ,  supra. 


16  NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER  III. 


§16.  The  pledgee  of  negotiable  collateral  securities  for  present  advance  a 
holder  for  value. 

17.  Negotiable  securities  as  collateral  for  future  advances. 

18.  The  pledgee  of  negotiable  collateral  securities,  for  an  antecedent  debt, 

without  more,  a  holder  for  value. 

19.  The  decisions  of  the  United  States  Supreme  Court. 

20.  Railroad  Company  v.  National  Bank. 

21.  The  contra  state  rule  not  followed. 

22.  The  rule  in  England. 

23.  The  contra  rule— the  pledgee  for  an  antecedent  debt,  without  more, 

not  a  holder  for  value. 

24.  The  New  York  rule  as  to  pledge  for  antecedent  debt. 

25.  The  rule  in  Missouri. 

26.  The  rule  in  Ohio  and  other  states. 

27.  The  pledgee  for  antecedent  debt,  with  new  consideration,  a  holder  for 

value. 

28.  Transfer  in  payment  of  antecedent  debt. 

29.  Such  transfer  is  prima  facie  as  collateral  security. 
80.  The  rule  in  Massachusetts  and  Vermont. 


§16.  THE  PLEDGEE  OP  NEGOTIABLE  COLLATERAL  SE- 
CURITY FOR  PRESENT  ADVANCE,  A  HOLDER  FOR  VALUE. 
— The  pledgee  of  negotiable  instruments,  as  bills  of  ex- 
change and  promissory  notes,  before  maturity,  by  indorse- 
ment and  delivery,  so  that  he  becomes  a  party  thereto,  for 
a  present  advance,  and  as  a  part  of  the  transaction  of  loan, 
and  without  notice  of  antecedent  equities,  is  a  holder  for 
value  in  the  due  course  of  business.1 

1  Lehman  v.  Tallahassee  Man.  Co.  803;  Slate  Savings  Assn.  0.  Hurst, 
64  Alu.  567;  Miller  v.  Pollock,  99  17  Kan.  532;  Best  t>.  Crall,  23  Ib. 
Pa.  St.  202;  Plotts  t>.  Byera,  17  la.  482;  Logan  t>.  Smith.  62  Mo.  455; 


TFIE   PLEDGEE   A   HOLDER   FOR   VALUE. 


17 


While  such  collateral  security  is  not  regarded  as  the 
principal  foundation  for  the  advance,  yet  the  pledgee  parts 
with  liis  money  upon  the  faith  that  the  collateral  notes  will 
be  paid  in  the  event  that  the  principal  note  is  not ;  and, 
having  parted  with  value  upon  receiving  such  collateral 
notes,  is  a  holder  for  value  thereof.1  A  loan  of  money  to 
one  insolvent  upon  collateral  securities  pledged  at  the  time 
of  the  loan,  if  the  same  be  free  from  fraud,  and  even  if  the 
lender  has  reason  to  believe  the  borrower  is  insolvent,  is  a 
valid  transaction,  and  the  pledgee  may  retain  the  securities 
until  the  debt  is  paid.  The  power  to  raise  ready  money 
under  such  circumstances  may  be  of  great  value  to  the  bor- 
rower.3 


Buncombe  v.  R.  R.  Co.,  84  N.  Y. 
190;  Richardson  v.  Campbell,  48  N. 
Y.  348;  Williams  v.  Smith,  2  Hill, 
301 ;  Ferden  v.  Smith,  2  E.  D.  Smith 
106;  Bank  of  N.  Y.  v.  Vanderhorst, 
32  N.  Y.  533;  Farwell  v.  Importer's 
Bank,  90  N.  Y.  483;  Tlolbrook  v. 
Bassett,  5  Ducr.  147;  Brookman  v. 
Metialf,  Ib.  429;  Van  Blarcum  v. 
Broadway  Bank,  37  N.  Y.  540; 
Munn  D.  McDonald,  10  Watts,  270; 
Brown  v.  Warren,  43  N.  11.  430; 
Chicopee  Bank  v.  Chapin,  8  Met.  40; 
Tarbell  v.  Sturtevant,  26  Vt.  513; 
Griswold  v.  Davis,  31  Vt.390;  Bond 
v.  Wiltze,  12  Wis.  611;  Crosby  v. 
Roub,  16  Ib.  616;  Lyon  v.  Ewings, 
17  Ib.  61 ;  Curtis  v.  Mohr,  18  Ib.  615 ; 
Bowman  v.  VanKuren,  29  Ib.  219; 
Louisiana  State  Bank  v.  Gaienne,  21 
La.  Ann.  555;  Mechanics'  Assn.  v. 
Ferguson,  29  La.  549;  Hotchkiss  v. 
Nat.  Banks,  22  Wall.  354;  Tiffany  v. 
Boatmen's  lust.  18  Ib.  375;  Michi- 
gan Bank  v.  Eldrcd,  9  Ib.  544,  553; 
Railroad  Co.  v.  National  Bank.  102 
U.  S.  14  25.  The  Court  (Harian,  J.) 
say:  "It  may  be  regarded  as  set- 
tled in  commercial  jurisprudence 
2 


— there  being  no  statutory  regula- 
tion on  the  subject — that  where  ne- 
gotiable paper  is  transferred  by  in- 
dorsement, as  collateral  security  for 
a  debt  created,  or  a  purchase  made, 
at  the  time  of  the  transfer  *  *  * 
the  holder  who  takes  the  transferred 
paper,  before  its  maturity,  and  with- 
out notice,  actual  or  otherwise,  of 
any  defence  thereto,  is  held  to 
have  received  it  in  due  course  of 
business,  and,  in  the  sense  of  the 
commercial  law,  becomes  a  holder 
for  value,  entitled  to  enforce  pay- 
ment, without  regard  to  any  cquily 
or  defence  which  exists  between 
prior  parties  to  such  paper." 

1  Bank  of  New  York  v.  Vander- 
horst,  32  N.  Y.  553;  Miller  v.  Pol- 
lock, 99  Pa.  St.  202. 

8  Tiffany  v.  Boatmen's  Irst.  18 
Wall.  376,  388;  Cook  v.  Tullis,  Ib. 
340;  Wilson  v.  City,  17  Ib.  375; 
Mays  v.  Fritton,  20  Ib.  414;  Clark  v. 
Iselin,  21  Ib.360;  Watson  B.Taylor, 
Ib.  378;  Burnhisel  v.  Finnan,  22  Ib. 
170;  Sawyer  v.  Turpin,91  U.  S.  114; 
Jerome  v,  McCarter,  94  Ib.  734 ; 
Hutton  v.  Crittwell,  1  El.  &  Bl.  15; 


18  NEGOTIABLE   COLLATERAL  SECURITIES. 

The  rule  that  the  pledgee  of  negotiable  instruments, 
properly  indorsed  and  delivered,  receiving  the  same  as  col- 
lateral security  for  a  present  advance,  is  a  holder  for  value, 
is  illustrated  by  the  favor  shown  him  in  common  with  other 
holders  for  value  of  negotiable  paper.  Payments  made  by 
an  acceptor  of  a  bill  of  exchange  to  the  pledger  thereof,  who 
had  previously  indorsed  the  bill  as  security  for  a  present 
advance,  do  not  affect  the  right  of  the  pledgee  to  recover 
the  whole  amount  of  the  bill.1  Nor  will  the  fact  that  notes, 
tainted  with  illegality,  were  pledged  as  collateral  security 
for  other  notes  discounted,  the  money  on  which  was  paid 
over,  and  the  indorsement  of  the  notes  was  made  for  the 
purpose  of  cutting  off  the  equities  of  the  maker,  be  any  de- 
fence against  the  pledgee,  without  notice,  and  claiming  un- 
der a  bona  tide  advance.9  Pledges  of  negotiable  bonds  by 
a  corporation  to  its  directors  and  also  to  bankers,  for  pres- 
ent advances,  constitute  them  holders  for  value.3  A 
pledgee  of  bills  of  exchange,  made  for  approximate  amounts, 
upon  which  advances  were  made,  and  for  which  drafts  for 
the  actual  amounts  were  afterwards  substituted,  is  preferred 
to  a  representative  of  other  creditors,  appointed  before  the 
drafts  were  actually  paid.4  Upon  an  agreement  to  deposit 
securities  at  the  time  the  advance  is  made,  a  subsequent  de- 
livery of  them  is  enough  to  make  the  pledgee  a  holder  for 
value  upon  a  present  advance.6 

§17.  NEGOTIABLE  SECURITIES  AS  COLLATERAL  FOR 
FUTURE  ADVANCES. — The  pledgee  of  negotiable  instru- 

Bittleston  v.  Cook,  6  Ib.  296;  Harris  •  Third  Nat.  Bank  V.  Harrison,  10 

t>.  Rickett,  4  H.  &  N.   1;    Bell  t>.  Fed.  Rep.  243. 

Simpson,  2  Ib.  410;  Hunt  v.  Morti-  *  Lehman  v.  Tallahassee  Man  g.  Co. 

mer,  10  B.  &  C,  44;  ex  parte  Sharse,  64  Ala  567;  Buncombe  v.  R.  R.  Co., 

Crabbe,482;  Wadsworth  t>.  Tyler,  2  88  N.  Y.   1;   B.  c.  84  N.    Y.   190; 

B.  R.  101 ;  Lee  v.  Hart,  11  Exch.  Claflin  t>.  South  Carolina  R.  R.  Co., 

880;  Pennell  v.  Reynolds,  11  C.  B.  4  Hughes,  12. 

N.  S.  709.  *  Young  v.  Northern  111.  etc.  Assn. 

1  Savings  Assn.  t>.  Hunt,  17  Kan.  9  Biss.  300. 

632.  *  Fenby  c.  Pritchard,  2  Sandf .  151. 


THE  PLEDGEE  A  HOLDER  FOB  VALUE.        19 

ments  as  collateral  security  under  valid  agreements  stipu- 
lating for  future  advances  or  loans,  receiving  the  same  so  as 
to  become  a  party  thereto,  before  maturity,  without  notice, 
is  a  holder  for  value  in  the  usual  course  of  business.1  Such 
contracts  of  collateral  security  for  the  payment  of  future 
advances  are  regarded  as  in  the  nature  of  equitable  mort- 
gages, and  are  binding,  as  between  the  parties,  for  any  and 
all  advances  made  thereon  prior  to  notice  of  claims  of  third 
parties.2  An  exception  to  the  general  rule  is  found  in  a 
Tennessee  decision,  where  the  same  rule  is  applied  to  nego- 
tiable paper  taken  as  collateral  security  for  future  advances, 
as  when  given  for  antecedent  indebtedness,  the  holder  re- 
ceiving it  as  though  he  were  a  transferee  of  over-due  paper, 
subject  to  the  equities  existing  at  the  time  of  the  transfer, 
but  not  those  arising  subsequent  thereto.* 

The  rule  in  favor  of  the  pledgee  receiving  such  securi- 
ties before  maturity  for  future  advances,  without  notice  of 
equities,  is  supported  in  cases  where  the  act  of  pledge  is  a 
misappropriation.  A  banker  holding  promissory  notes 
simply  for  the  purpose  of  collecting  interest  thereon,  but 
which  were  indorsed  in  blank,  pledged  the  same  with  his 
Chicago  correspondent,  as  security  for  his  then  indebtedness 
and  future  advances,  and  subsequently  became  insolvent. 
The  pledgee  having  acquired  the  same  in  good  faith,  in  the 
usual  course  of  business,  from  one  invested  with  the 
evidence  of  .title,  the  owner  must  suffer  the  loss  resulting 
from  misplaced  confidence.4  One  of  several  partners  in- 
dorsed a  promissory  note  payable  to  the  firm,  as  security  for 
future  advances  to  another  firm,  of  which  he  was  a  mem- 
ber, with  others,  the  transfer  being  an  act  of  misappropria- 
tion. The  first  firm  subsequently  became  insolvent.  In  a 

1  Dayton  Nat.  Bank  v.  Merchants  16  Conn.  287;  Buchanan  v.  Interna- 

Nat.  Bank,  37  Ohio  St.  208,  217;  tional  Bank,  78  111.  500;  Heywooda. 

Davis  v.  Randall,   115  Mass.  547 ;  Watson,  4  Bing.  496. 

Merchants'  Nat.   Bank  «.  Hall,  83  »  Walker  v.  Lee,  15  S.  C.  142. 

N.  Y.  338;  Agawam  Bank  t>.  Strev-  *  Richardson  v.  Rice,  9  Baxt.  290. 

er,  18  Ib.  502;  Calkins  v.  Lockwood,  *  Morris  v.  Preston,  93  111.  215. 


20 


NEGOTIABLE   COLLATERAL  SECURITIES. 


contest  between  its  creditors  and  the  holders  of  the  note  as 
collateral,  the  claims  of  the  latter  were  enforced.1 

§18.  THE  PLEDGEE  OP  NEGOTIABLE  COLLATERAL  SE- 
CUIUTIKS  FOR  AN  AXTKCEDENT  DEBT,  WITHOUT  MORE,  A 
HOLDER  FOR  VALUE. — The  pledgee  of  negotiable  instru- 
ments, properly  indorsed  and  delivered  (where  indorse- 
ment is  required)  or  by  delivery  only  where  indorsed  in 
blank  or  made  payable  to  bearer,  so  that  he  becomes  a  party 
theieto,  receiving  the  same  before  maturity,  in  good  faith, 
and  without  notice  of  equities,  as  collateral  security  for  a 
valid  antecedent  debt,  without  more,  is  a  holder  for  value 
in  the  usual  course  of  business.*  Such  pledgee,  holding 


1  Walker  v.  Lee,  supra. 

»  Swift  v.  Tyson,  16  Pet.  1 ;  Good- 
man v.  Simonds,  20  How.  373;  Mc- 
Carty  v  Roots,  21  How.  430 ;  Saw- 
yer  v.  Prichctt,  19  Wall.  166  ;  Gates 
v.  Nat.  Bank,  100  U  S.  239  ;  Rail- 
road Co.  v.  Nat.  Bank.  102  U.  S.  14; 
Pugh  v.  Durfee,  1  Blatch.  412;  Third 
Nat  Bank  v.  Harrison.  Cir.  Ct.  E.  D. 
Mo.  1882,  10  Fed.  Rep.  243 ;  Allen 
e.  Dallas  etc.  Ry.  Co.,  3  Woods,  C. 
C.  316,  325 ;  Robinson  v.  Smith,  14 
Cal.  94;  Payne  v.  Beasley  8  Ib.  266; 
Davis  v.  Russell,  52  Ib.  611 ;  Sackett 
v.  Johnson,  54  Ib.  107;  Roberts  v. 
Hall,  37  Conn.  205;  Bridgeport  City 
Bank  v.  Welch,  29  Ib.  475;  Savings 
Bank  v.  Bates,  8  Ib.  505  ;  Brush  v. 
Scribner,  11  Ib.  388;  Gibson  v.  Con- 
ner, 8  Ga.  47;  Meadow  v.  Bird,  22 
Ib  246;  Bond  v.  Central  Bank,  2 
Kelly.  106;  Manning  v.  McClure,  36 
111.  490 ;  Butters  v.  Haughwert,  42 
III.  18;  Doolittle  v.  Cook,  75  Ib.  354; 
Mix  e.  Bank,  91  111.  20;  Morris  v. 
Preston  93  Ib.  215:  Miller  v.  Lar- 
ned,  103  Ib.  562;  Mclntire  v.  Yatcs, 
104  111.  491;  First  Nat.  Bank  t>. 
Beard,  8  Bradw.  239;  Valletta  a 


Mason,  1  Ind.  89;  Work  v.  Bray  ton, 
5  Ib.  -96;  Babcock  v.  Jordan,  24  Ib. 
14;  Straughan  v.  Fairchild,  80  Ib. 
598;  Grovanovich  v.  Citizen's  Bank, 
26 La.  Ann.  15.  Maryland:  Mailland 
«.  Citizens  Nat.  Bank,  40  Md.  540; 
Fisher  v.  Fisher,  90  Mass  303;  Paine 
v.  Furnas,  117  Mass.  290;  Chicopce 
Bank  v.  Chapin,  8  Met.  40;  Blanch- 
ard  v.  Stevens,  3  Gush.  16;  Gardner 
v.  Guagcr,  1  Allen,  502;  LeBrcton 
v.  Pierce,  2  Ib.  14;  Stoddard  v.  Kim- 
ball,  6  Cush.  469;  Culver  v.  Bene- 
dict, 13  Gray,  11;  Putnam  v.  Stoiy, 
132  Mass.  205 ;  Allaire  v.  Harts- 
horne,  21  N.  J.  L.  665 ;  Amos  v. 
M'Michacl,  36  Ib.  92;  Bank  v.  Car- 
rington,  5  R.  I.  515;  Cobb  v.  Doyle, 
7  Ib.  550;  Bank  t>.  Chambers,  11 
Rich.  (S.  C.)  657;  Grecneaux  v. 
Wheeler.  6  Tex.  515  ;  Alexander  Ry. 
Co.  v.  Burke,  22  Gratt.  254.  The 
paper  must  be  taken  in  good  faith, 
and  without  notice  of  anything  to 
impeach  its  validity.  Chicopee 
Bank  v.  Chapin,  8  Met.  40;  Stoddard 
v.  Kimball,  6  Cush.  469;  Culver  v. 
Benedict,  13  Gray,  11;  Stevens  ». 
Blanchard,  8  Cush.  162.  And  the 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.        21 

negotiable  instruments  as  collateral  security  for  a  valid  in- 
debtedness, payment  of  which  he  is  at  once  entitled  to 
enforce,  and  receiving  such  negotiable  collateral  securities 
so  as  to  become  a  party  thereto,  is  charged  with  the  respon- 
sibilities and  liabilities  of  making  proper  dejnand  and  of 
giving  notice  of  non-payment  of  them  uuoii  default.  The 
assumption  of  this  duty  and  the  implied  promise  of  delay  in 
the  enforcement  of  the  original  indebtedness  by  the  receipt 
thereof,  furnishes  a  valuable  consideration  to  support  such 
transfer  of  negotiable  instruments  as  collateral  .security  for 
an  antecedent  debt,  and  brings  the  transaction  clearly  with- 
in the  ordinary  and  usual  course  of  business.  The  rule,  as 
above  stated,  is  approved  by  the  Supreme  Court  of  the 
United  States  and  the  Federal  Courts,  and  by  the  courts  of 
last  resort  in  the  following  States:  California,  Connecticut, 
Georgia,  Illinois,  Indiana,  Louisiana,  Maryland,  Massachu- 
setts, New  Jersey,  Rhode  Island,  South  Carolina,  Texas, 
and  Virginia  ;  and  in  England  and  Canada.1 

§19.  THE  RULE,  AS  ANNOUNCED  BY  THE  UNITED 
STATES  SUPREME  COURT. — The  first  leading  case  in  the 
Supreme  Court  of  the  United  States,  in  which  the  title  of 
the  holder  for  value  of  negotiable  instruments  as  collateral 
security  for  a  pre-existing  debt,  without  more^  was  discussed, 
was  Swift  v.  Tyson,2  in  which  Swift,  an  indorsee  of  a  bill  of 
exchange,  received  the  same  in  payment  of  a  pre-existing 
debt,  without  notice  of  any  equities  existing  between  the 

same  rule  is  applied  to  negotiable  mercial  world  has  a  common  inter- 
coupon  bonds.  Culver  v.  Benedict,  est,  uniformity  and  certainty  of  de- 
13  Gray,  7;  Lehman  v.  Tallahasse  cision  is  greatly  to  be  desired;  and 
etc  Co.,  64  Ala  567;  Allen  v.  Dallas  since  the  highest  tribunals  in  this 
Ry.  Co.  3  Woods,  316,  325.  country  and  iti  England  are  ruling 
1  In  Straughan  v.  Fairchild,  in  harmony  upon  this  point,  a  state 
80  Ind.  598,  the  Court  say:  "On  court  can  hardly  be  justified  in 
a  subject  of  such  general  im-  adopting,  if  indeed  in  adhering  to,  a 
portance,  and  concerning  which  different  rule." 
there  can  not  properly  be  a  *  16  Peters,  1.  (Catron.  J.  diss.) 
local  rule,  and  in  which  the  com- 


22  NEGOTIABLE  COLLATERAL  SECURITIES. 

drawer  and  Tyson,  the  acceptor,  arising  from  want  of  con- 
sideration. In  this  case,  the  opinion  was  delivered  by  Mr. 
Justice  Story,  who,  after  insisting  that  the  receiving  of  a 
negotiable  instrument  in  payment  of,  or  as  security  for  a  pre- 
existing debt,  is  according  to  the  known  usual  course  of  trade 
and  business,  u&ked,  "And  why  upon  principle  should  not 
a  pre-existing  debt  be  deemed  such  a  valuable  considera- 
tion? It  is  for  the  benefit  and  convenience  of  the  commer- 
cial world  to  give  as  wide  an  extent  as  practicable  to  the 
credit  and  circulation  of  negotiable  paper,  that  it  may  pass 
not  only  as  security  for  new  purchases  and  advances,  made 
upon  the  transfer  thereof,  but  also  in  payment  of  and  as 
security  for  pre-existing  debts.  The  creditor  is  thereby  en- 
abled to  realize  or  to  secure  his  debt,  and  thus  may  safely 
give  a  prolonged  credit,  or  forbear  from  taking  any  legal 
steps  to  enforce  his  rights.  The  debtor  also  has  the  advan- 
tage of  making  his  negotiable  securities  of  equivalent  value 
to  cash.  But  establish  the  opposite  conclusion,  that  negotia- 
ble paper  can  not  be  applied  in  payment  of  or  as  security  for 
pre-existing  debts,  without  letting  in  all  the  equities  between 
the  original  and  antecedent  parties,  and  the  value  and  cir- 
culation of  such  securities  must  be  essentially  diminished, 
and  the  embarrassment  of  making  a  sale  thereof,  often  at  a 
ruinous  discount,  to  some  third  person,  and  then  by  circuity 
to  apply  the  proceeds  to  the  payment  of  his  debts." ' 

1  la  Railroad    Co.  v.  Nat.  Bank,  of  as  belonging  to  the  case,  until  the 

102  U.  S.  14,  24,  the  Court  (Harlan,  principal  opinion  was  presented  last 

J.)  say:  "  The  brief  dissent  of  Mr.  evening,  and  therefore  I  am  not  pre- 

Justice  Catron  was  solely  upon  that  pared  to  give  any  opinion,  even  if  it 

ground,  which  renders  it  quite  cer-  was  called  for  by  the  record."    Mr. 

tain  that  the  whole  court  was  aware  Chief  Justice  Lawrence,  of  the  Illi- 

of  the  extent  to  which  the  opinion  of  nois  Supreme  Court,  in  Manning  v. 

the  court  carried  the  doctrines  of  the  McClure,  36  111.  494,  referring  to  the 

commercial  law  upon  the  subject  of  subject  says:  "  The  note  in  the  case 

negotiable    instruments  transferred  of  Swift  v.  Tyson  was  taken  as  pay- 

or  delivered  as  security  for  antcced-  ment  and  not  merely  as  collateral 

ent  indebtedness."    Mr.  Justice  Ca-  security,   and  therefore  what    was 

Iron  says,  in  his  dissentient  opinion :  said  is  only  dicta;  but  attention  was 

"  I  never  heard  this  question  spoken  directed  to  this  by  Mr.  Justice  Ca- 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.         23 

The  question  was  next  referred  to  by  the  Court  in  the 
case  of  Goodman  v.  Simonds,1  in  which  there  was  a  settle- 
ment of  antecedent  indebtedness,  the  surrender  of  securities, 
and  making  of  new  notes,  payment  of  the  latter  being 
secured  by  a  bill  of  exchange.  There  having  been  a  full 
present  consideration  for  the  transfer  as  collateral  security 
of  the  bill  of  exchange,  the  Court  declared  the  question 
whether  a  transfer  of  negotiable  instruments  as  collateral 
security  for  an  antecedent  debt,  without  more,  would  make 
the  pledgee  a  holder  for  value  in  the  usual  course  of  busi- 
ness, did  not  arise. 

In  McCarty  v.  Roots,8  the  question  was  squarely  pre- 
sented. The  suit  was  brought  .against  an  indorser  by  a 
pledgee  holding  accommodation  bill  of  exchange  as  collateral 
security  for  an  antecedent  indebtedness,  without  any  other 
consideration.  The  Court  (McLean,  J.)  held  that  the 
fact  that  the  bills  were  indorsed  as  stated  did  not  impair  the 
pledgee's  right  of  recovery,  and  that  such  indorsement  and 
delivery  of  the  bills  as  collateral  security  for  a  pre-existing 
debt  was  a  valid  transaction,  within,  the  usual  course  of 
business. 

In  a  later  case,  Gates  v.  National  Bank,8  an  extension  of 
time  in  the  payment  of  the  antecedent  indebtedness  was 
granted,  which  of  itself  was  sufficient  to  constitute  a  pledgee 
of  a  negotiable  promissory  note,  properly  indorsed,  receiv- 
ing the  same  before  maturity,  a  holder  for  value,  in  the 
usual  course  of  business.  In  that  case  the  Court  (Harlan, 
J.)  stated  that  the  question  "  whether  the  taking  of  such 
note  merely  as  collateral  security  for  antecedent  debts, 
without  any  binding  contract  for  indulgence,  would  con- 


tron,  so  that  the  language  of  Judge  Notes,  p.  215,  n.  I,  reiterates  and 

Story  can  not  be  considered  as  inad-  supports  the  doctrine  announced  in 

vertently  used,  and  may  be  regarded  Swift  t>.  Tyson. 

as  receiving  the  implied  assent  of  the  *  20  How.  243. 

court,  with  the  exception  of  Judge  *  21  How.  432. 

Catron."    And  Judge  Story,  after-  »  100  U.  S.  239. 

wards,  in  his  work  on  Promissory 


24  NEGOTIABLE  COLLATERAL  SECURITIES. 

stitute  a  valuable  consideration  within  the  established  rules 
of  commercial  law,  protecting  the  creditor  against  defenses 
or  equities  between  antecedent  parties,  of  which  he  had  no 
notice,  it  is  not  necessary  now  to  decide.  That  precise 
question  is  not  presented  in  this  case,  and  we  forbear  to 
express  any  opinion  upon  it." 

§  20.  RAILROAD  Co.  v.  NATIONAL  BANK. — The  title 
and  interest  of  a  pledgee  of  negotiable  instruments  receiv- 
ing the  same  as  collateral  security  for  an  antecedent  debt, 
without  more,  was  finally  settled  in  the  Supreme  Court  of 
the  United  States  in  the  leading  case,  The  Franklin  City 
and  Newtown  Railroad  Company  v.  National  Bank  of  the  Re- 
public.1 Negotiable  securities,  indorsed  in  blank,  entrusted 
to  brokers  for  negotiation  or  sale,  were  misappropriated  by 
them  as  collateral  security  for  an  antecedent  debt,  without 
any  further  consideration.  The  Court  (Harlan,  J.)  an- 
nounced the  rule,  that  "  the  transfer  before  maturity  of  ne- 
gotiable paper,  as  security  for  an  antecedent  debt  merely, 
without  other  circumstances,  if  the  paper  be  so  indorsed  that 
the  holder  becomes  a  party  to  the  instrument,  although  the 
transfer  is  without  express  agreement  by  the  creditor  for 
indulgence,  is  not  an  improper  use  of  such  paper,  and  is  as 
much  in  the  usual  course  of  commercial  business  as  its  trans- 
fer in  the  pa}rment  of  sucfi  debt.  In  either  case  the  bona 
fide  holder  is  unaffected  by  equities  or  defences  between 
prior  parties,  of  which  he  had  no  notice."*  The  Court 

1 102  U.  S.  16.  the  indorsers  to  the  indorsee,  and  the 
*  Railroad  Co.  v.  National  Bank,  obligation  to  pay  or  secure  such 
102 U.  S.  28.  Mr.  Justice  Bradley,  in  debt.  Had  any  other  collateral  se- 
his  opinion,  while  concurring  in  the  curity  been  given,  as  a  mortgage,  or 
judgment,  said  (p.58):  "I  do  not  re-  a  pledge  of  property,  it  would  have 
gard  the  obligation  assumed  by  the  been  equally  sustained  by  the  con- 
indorsee  to  present  the  note  for  pay-  sideration  referred  to,  namely,  ths 
mcnt  and  give  notice  of  non-payment  debt.,  and  the  obligation  to  pny  it  or 
as  the  only,  or  the  principal,  consid-  to  secure  its  payment.  *  *  Secur- 
eration  of  such  transfer.  The  true  ity  for  the  payment  of  a  debt  actual- 
consideration  was  the  debt  due  from  ly  owing  is  a  good  consideration. 


THE   PLEDGEE    A   HOLDER   FOR   VALUE.  25 

(Hai-lan,  J  )  say  :  (p.  24)  "•  The  bank  did  not  take  the  note 
in  suit  as  a  mere  agent  to  receive  the  amount  due  when  it 
suited  the  convenience  of  the  debtor  to  make  payment.  It 
received  the  note  under  an  obligation  imposed  by  the  com- 
mercial law,  to  present  it  for  payment,  and  give  notice  of 
non-payment,  in  the  mode  prescribed  by  the  settled  rules 
of  that  law.  We  are  of  opinion  that  the  undertaking  of  the 
bank  to  fix  the  liabilities  of  prior  parties,  by  due  presenta- 
tion for  payment  and  due  notice  in  case  of  non-payment, — 
an  undertaking  necessarily  implied  by  becoming  a  party  to 
the  instrument — was  a  sufficient  consideration  to  protect  it 
against  equities  existing  between  the  other  parties,  of  which 
it  had  no  notice.  It  assumed  the  duties  and  responsibilities 
of  a  holder  fo*r  value,  and  should  have  the  rights  and  privi- 
leges pertaining  to  that  position.  The  correctness  of  this 
rule  is  apparent  in  ca^es  like  the  one  now  before  us.  The 
note  in  suit  was  negotiable  in  form,  and  was  delivered  by 
the  maker  for  the  purpose  of  being  negotiated.  Had  it  been 
regularly  discounted  by  the  bank,  at  any  time  before  matu- 
rity, and  the  proceeds  either  placed  to  the  credit  ot  the 
pledgers,  or  applied  directly  to  the  discharge,  pro  tanto,  of 
any  one  of  the  call  loans  previously  made  to  them,  it  would 
not  be  doubted  that  the  bank  would  be  protected  against  the 
equities  of  prior  parties.  Instead  of  procuring  its  formal 
discount,  the  pledgors  used  it  to  secure  the  ultimate  pay- 
ment of  their  own  debt  to  the  bank.  *  *  *  It  was,  un- 
der the  circumstances,  the  duty  of  the  pledgor  to  make  such 
payment,  or  to  secure  the  debt.  It  was  important  to  them, 
and  was  in  the  usual  course  of  commercial  transactions,  to 
furnish  such  security." 

It  was  urged  that  nothing  having  been  surrendered  by 

and  sufficient  to  support  a  transfer  give  it  that  effect.  If  not  transferred 

of  property.     When  it  is  a  promis-  before  maturity  or  in  due  course  of 

sory  note  or  bill  of  exchange,  it  has  business,  then,  of  course,  it  can  not 

the  effect  of  giving  absolute  title  and  have  that  effect.     A  transfer  for  the 

of  cutting  off  prior  equities,  provid-  purpose  of  securing  a  debt  is  a  trans- 

ed  the  ordinary  conditions  exist  to  fer  in  due  course." 


26  NEGOTIABLE  COLLATERAL  SECURITIES. 

the  pledgee,  to  permit  antecedent  equities  to  prevail  would 
deprive  him  of  no  right  or  advantage  enjoyed  at  the  time  of  the 
transfer,  or  impose  upon  him  additional  burdens  or  incon- 
veniences. The  Court,  commenting  upon  these  suggestions, 
said :  "  This  may  be  true  in  some,  but  it  is  not  true  in  most 
cases ;  nor,  in  our  opinion,  is  it  ever  true  when  the  note, 
upon  its  delivery  to  the  transferee,  is  in  such  form  as  to 
make  him  a  party  to  the  instrument  and  impose  upon  him 
the  duties  which,  according  to  the  commercial  law,  must  be 
discharged  by  the  holder  of  negotiable  paper,  in  order  to  fix 
liability  upon  the  indorser."1 

§  21.  THE  STATE  RULE  IN  SUCH  CASES  OF  PLEDGE 
NOT  FOLLOWED. — Attempts  have  been  made  to  secure  from 
the  Federal  Court  of  last  resort  an  acknowledgment  of  the 
views  of  the  several  State  Courts  in  construing  the  rights  of 
holder  of  negotiable  instruments  as  collateral  security  for 
antecedent  debt,  without  further  consideration,  as  furnish- 
ing the  proper  guide  in  cases  appealed  from  those  States. 
The  United  States  Supreme  Court  has  declined,  in  relation 
to  questions  of  commercial  law,  to  consider  itself  bound  by 
the  decisions  of  the  State  Appellate  Courts.*  In  a  recent 
case,  where  a  debtor  had  given  to  a  national  bank  a  nego- 
tiable note  as  collateral  security  for  a  pre-existing  debt, 
paying  usurious  interest  for  an  extension  of  the  time  of  pay- 
ment, it  was  insisted  that  the  rule  as  applied  by  the  Ala- 
bama Courts,  which  do  not  follow  Swift  v.  Tyson  on  the 
question,  should  be  applied.  The  Supreme  Court  held  other- 
wise,1 and  again  in  a  later  case.4 

§  22.  THE  RULE  IN  ENGLAND  AND  CANADA. — In  En- 
gland, the  rule  is  approved  that  the  holder  of  negotiable 

1  Railroad  Co.  «.  National  Bank,  Turpley,  18  How.  517;  Goodman  v. 

p.  27.  Simonds,  20  Ib.  343,  371. 

•  Swift  v.  Tyson,  16  Pet.  1,  18;  »  Gates  v.  Nat.  Bank,  100  U.  S.  239. 

Carpenter  t>.  Ins.  Co.  Ib.  195;  Ames  4  Railroad  Co.  0.  Nat.  Bank,  103 

t>.  Smith,  Ib.  303,  314;  Watson  t>.  U.  S.  14,  31. 


THE   PLEDGEE   A   HOLDER   FOB   VALUE. 


27 


promissory  notes  or  bills  of  exchange,  receiving  the  same 
properly  indorsed,  before  maturity,  as  collateral  security  for 
an  antecedent  debt,  without  more,  in  good  faith,  without 
notice  of  prior  equities,  is  a  holder  for  value,  in  the  usual 
course  of  business,  free  from  all  antecedent  equities  as  the 
most  favored  holder  of  negotiable  paper.1  The  like  rule  is 
also  approved  in  the  Dominion  of  Canada.9  The  English 
House  of  Lords  has  applied  the  rule  to  checks  drawn  upon 
upon  a  bank,  as  being  equally  applicable  to  checks  and  such 
negotiable  instruments  as  were  payable  on  demand  as  to 
those  payable  at  a  future  time.8  Receiving  such  negotiable 
paper  charged  with  the  duty  of  presentment  and  to  give 
notice  of  non-payment,  if  necessary,  upon  default,  the 
pledgee  is  charged  with  the  amount  of  such  securities 
where  loss  is  caused  by  his  neglect.4  And  where  a  creditor 
takes  a  note  or  bill  payable  at  a  future  day,  either  in  pay- 
ment of  or  as  collateral  security  for  a  pre-existing  debt,  he 
can  not  commence  an  action  at  law  for  his  original  debt,  un- 


1  Currie  ®.  Misa,  L.  R.  10  Ex.  153, 
165;  s.  c.  affirmed  on  appeal,  L.  R. 
1  App.  Gas.  554 ;  Percival  v.  Framp- 
ton,  2  C.  M.  &  R.  180;  Poirier  v. 
Morris.  2  El.  &  Bl.  89;  Collins  «. 
Martin,  1  P.  &  B.  650;  Heywood  v. 
Watson,  4  Bing.  493;  s.  c.  1  M.  & 
P.  268;  Braraah  v.  Roberts,  1  Bing. 
N.  C.  469;  Crofts  v.  Beale,  11  C.  B. 
N.  S.  172;  Bosanquet  v.  Forster,  9 
C.  &  P.  659;  Whistler  v.  Foster,  14 
C.  B.  N.  S.  248;  Leask  ».  Scott,  L. 
R.  2  Q.  B.  D.  376;  Gorgier  v.  Mie- 
ville,  SB.  &  C.  45;  In  re  Patent 
File  Co.  L.  R.  6  Ch.  83.  In  Rail- 
road Company  v.  Nat.  Bank,  102  U. 
S.  14,  48,  Mr.  Justice  Bradley,  after 
reviewing  the  English  authorities 
already  cited,  says:  "These  au- 
thorities are  sufficient  to  show  that 
there  is  but  one  voice  upon  the  sub- 
ject in  the  parent  country,  and  that 
they  speak  to  the  point  with  a  de- 


gree of  unanimity  and  uniformity 
well  calculated  to  excite  admiration 
and  to  inspire  confidence  that  the 
rule  of  decision  is  both  correct  and 
just.  Not  only  every  court,  but 
every  judge  of  every  court,  in  that 
country,  concurs  in  the  proposition 
that  the  holder  of  such  a  negotiable 
security  before  maturity,  as  collat- 
eral to  a  pre  existing  debt,  without 
notice  of  any  prior  equities,  is  a  bona 
fide  holder  for  value  in  the  usual 
course  of  business  and  that  his  title 
to  the  instrument  is  good,  and  whol- 
ly unaffected  by  any  such  prior 
equities  between  the  antecedent  par- 
ties." 

9  Bank  v.   Chamber.  11  Rich.  657.' 

*  Currie  v.  Misa,  supra. 
.    4  Peacock  v.  Purcell,  14  C.  B.  K 
S.  728;  Heywood  v.  Watson,  1  M.  & 
P.  268;  s.  c.  4  Bing.  496. 


28  NEGOTIABLE  COLLATERAL  SECURITIES. 

til  such  note  or  bill  becomes  payable,  and  default  is  made  ;' 
nor  where  the  collateral  note  or  bill,  indorsed  to  the  pledgee, 
has  been  transferred  while,  current,  and  passed  into  the 
hands  of  third  persons  for  value,  and  is  still  outstanding.* 

The  English  Courts  have  discussed  in  relaiion  to  the 
translY-r  of  negotiable  instruments  as  collateral  security  for 
antecedent  debts,  whether  the  requisite  valuable  considera- 
tion to  constitute  the  pledgee  a  holder  for  value,  should  be 
presumed  to  arise  from  the  implied  agreement  of  the  cred- 
itor to  suspend  his  remedies  for  the  period  during  which  the 
note  or  bill  so  pledged  has  to  run  until  maturity  ;*  or 
from  the  fact  that  a  negotiable  security  given  for  such  a 
purpose  is  a  conditional  payment  of  the  debt,  the  condition 
being  that  the  debt  survives  if  the  security  is  not  realized.4 
The  latter  view  is  approved  in  the  leading  case  of  Currie 
v.  Misa,'  in  which  the  court  accepted  as  correct  the  follow- 
ing definition  of  consideration :  "  A  valuable  consideration, 
in  the  sense  of  the  law,  may  consist  either  in  some  right, 
interest,  profit,  or  benefit  accruing  to  the  one  party,  or  some 
forbearance,  detriment,  loss, or  responsibility, given,  suffered, 
or  undertaken  by  the  other.'" 

§23.  THE  CONTRA  RULE — THE  PLEDGEE  FOR  AN 
ANTECEDENT  DEBT,  WITHOUT  MORE,  NOT  A  HOLDER  FOR 
VALUE. — The  rule  prevails  in  certain  states  that  the  pled- 
gee, receiving  negotiable  instruments,  before  maturity,  as 
collateral  security  for  an  antecedent  debt,  without  more,  al- 
though becoming  a  party  thereto,  and  without  notice  of 
equities,  is  not  a  holder  for  value,  in  the  usual  course  of 
business,  but  takes  only  the  title  of  the  pledger,  subject  to 

'Stedmim    *>.   Gooch,   1   Esp.  4;  «  Belshaw  v.  Bush,  11  C.  B.  191; 

Price  v.  Price,  16  M.  &  W.  233,  243.  Griffiths  t>.  Owens,  13  M.  &  W.  58. 

1  Price  v.  Price,  supra.  64. 

»  Alliance  Bank  v.  Broom.  2  Drew  *  L.  R.  10  Ex.  153;  s.  c.  1  App. 

&  8.  289;  Morton  «.  Burn,  7  Ad.  &  Cas.  554. 

E.  19;  Baker  v.  Walker,  14  M.  &  W.  •  Com.  Dig.  Action  on  the  Case. 

4C5;  Purccll  v.  Peacock,  supra.  assumpsit,  B.  1,  15. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE. 


29 


all  antecedent  equities  existing  at  the  time  of  the  transfer. 
This  rule  prevails,  with  various  but  not  essential  modifica- 
tions, in  the  States  of  Alabama,  Arkansas,  Iowa,  Kentucky, 
Maine,  Mississippi,  Missouri,  Nevada,  New  Hampshire,  New 
York,  North  Carolina,  Ohio,  Pennsylvania,  Tennessee,  Ver- 
mont and  Wisconsin.1  It  is  supported  mainly  upon  the 


1  Bertrand  v.  Barkman,  13  Ark. 
150;  McKenzie  v.  Bank,  28  Ala. 
606;  Boyd  v.  Beck,  29  Ib.  703;  Fe- 
nouillc  v.  Hamilton.  35  Ala.  319;  Cul- 
lum  v.  Branch  Bank,  4  Ib.  21;  An- 
drews v.  McCoy,  8  Ib.  920;  Wagner 
v.  Simmons,  61  Ib.  143;  Bank  of  Mo- 
bile v.  Polnitz,  61  Ala.  147;  Iowa  Col- 
lege v.  Hill,  12  la.  462;  Ryan  v. 
Chew,  13  Ib.  389;  Union  Nat.  Bank 
v.  Barber,  56  la.  559;  Lee  v.  Snaead, 
1  Mete.  628;  Alexander  v.  Spring- 
field Bank,  2  Ib.  534;  Greenwell  v. 
Iluyden,  78  Ky.  332;  Smith  v.  His- 
cock,  14  Me.  149;  Nutler  v.  Stover, 
48  Ib.  163;  Bramhall  v.  Beckett.  31 
Ib.  205;  Homes  v.  Smith,  16  Ib.  177; 
Brooks  v.  Whitson,  7  S.  &  M.  (Miss.) 
513;  Goodman  v.  Simonds,  19  Mo. 
106;  Grant  v.  Kidwell,  30  Ib.  455; 
Logan  v.  Smith,  62  Ib.  455;  Ferry  v. 
Hickman,  1  Mo.  App.  119;  Brainard 
«.  Reavis,  2  Ib.  490 ;  Jenness  v  Bean, 
10  N.  H.  236;  Williams  v.  Little,  11 
Ib.  66;  Fletcher  v.  Case,  16  N.  H.  68; 
Rices.  Railt  17  N.  H.  116;  Fair*. 
Howard  6  Nev.  304;  Bay  v.  Codding- 
ton,  5  Johns.  54;  s.  c.  20  Johns.  637; 
Clark  «.  Ely,  2  Sandf.  Oh.  166;  Fen- 
by  v.  Pritch  ird,  2  Ib.  151 ;  Younges 
v.  Lee,  18  Barb.  187;  Prentice  v. 
Graves  33  Ib.  621 ;  American  Ex. 
Bank®  Corliss. 46  Ib.  19;  Bright®. 
Judson,  47  Ib.  29;  Stalker  v.  McDon- 
ald, 6  Hill  93;  Wardell  v.  Howard, 
9  Wend.  170:  Rosa  p.  Brotherson,  10 
Ib.  85;  Ontario  Bank  v.  Worthing- 
ton,  12  Ib.  593;»Payne  v.  Cutler,  13 


Ib.  605;  Lawrence  v.  Clark.  36  N.  Y. 
128;  Turner  v.  Tread  way,  53  Ib. 
650;  Taft  v.  Chapman,  55  Ib.  445; 
Phoenix  Ins.  Co.  v.  Church,  81  Ib. 
222;  Duncomb  v.  Railroad  Co.,  84 
Ib.  190,  204;  s.  c.  88  Ib.  1;  Roxbor- 
ougli  v.  Messick,  6  Ohio  St.  448; 
Cleveland  v.  State  Bank,  19  Ib.  145; 
Copeland  v.  Manton,  22  Ib.  398,  402; 
Kingslar.d  v.  Pryor,  33  Ib.  19;  Bank 
v.  Fowler,  36  Ib.  524;  Pitts  v.  Fogle- 
song,  37  Ib.  676;  Bank  v.  Bank,  Ib. 
208;  Hartman  v.  Duval,  1  Rawle, 
219;  Petrie  v  Clark,  11  S.  &  R.  377; 
Depeau  v  Washington,  6  Whart. 
279;  Trotter  v.  Shippen,  2  Pa.  St. 
258;  Appleton  v.  Donaldson,  3  Ib. 
381;  Kirkpatrick  v  Muirhead,  16  Ib. 
117;  Lord  t>.  Ocean  Bank,  20  Ib. 
384;  Sitgreaves  v.  Bank,  49  Ib  359; 
Lenheim  v.  Wilmarding  55  Ib.  73; 
Ashton's  App.  73  Ib.  153;  Pratt's 
App.,  77  Ib.  378;  Roycr  v.  Keystone 
Bank,  83  Ib.  248;  Cummings  v. 
Boyd,  Ib.  372;  Penn  Bank  v.  Frank- 
ish,  91  Ib.  344;  Dovey's  App.,  97  Ib. 
53;  Maynard  v.  Bank,  98  Ib.  250; 
King  v.  Doolittle,  1  Head  (Tenn ) 
77;  Kimbro  v.  L}  tie,  10  Yerg.  417, 
428;  Napier  v.  Elam,  6  Ib.  108; 
Richardson  v.  Rice,  9  Baxt.  290; 
Nichols  v.  Bate,  10  Yerg.  429; 
Raddick  v.  Jones,  6  Ib.  109;  At- 
kinson v.  Brooks,  26  Vt.  569  ; 
Austin  v.  Curtis,  31  Vt.  64;  Cook  v. 
Helms,  5  Wis.  Ill;  Stevens  v.  Camp- 
bell, 13  Ib.  375;  Jenkins  v.  Schwab, 
14  Ib.  1;  Schufeldt  v.  Pease,  16  Ib. 


30  NEGOTIABLE  COLLATERAL  SECURITIES. 

ground  that  a  valuable  present  consideration  must  be  given 
by  a  pledgee  to  constitute  him  a  holder  for  value  in  the 
usual  course  of  business;  and  that  a  pledgee  of  negotiable  in- 
struments as  collateral  security,  who  has  made  no  present 
advances,  nor  satisfied  any  existing  debt,  nor  released  any 
securities,  nor  incurred  any  new  responsibilities  on  the 
credit  of  the  paper,  and  who  receives  the  same  simply  as 
collateral  security  for  an  antecedent  debt, 'without  further 
consideration,  is  not  a  holder  for  value,  in  the  usual  course 
of  business,  and  protected  from  antecedent  equities. 

The  rule,  as  stated,  has  become  a  part  of  the  settled 
commercial  law  of  the  several  states  named,  and  is  not  like- 
ly to  be  changed  except  by  statutory  enactment.  The  con- 
trolling objections  to  it  are  that  it  serves  to  embarrass  and 
check  the  free  use  of  commercial  paper  by  parties  dealing 
bona  fide;  forces  the  debtor  to  sell  his  negotiable  securities 
often  at  a  sacrifice,  in  order  to  apply  the  proceeds  to  the 
payment  of  an  antecedent  debt,  where  he  might,  by  using 
the  same  as  collateral  security,  obtain  a  moral  claim  at  least 
for  time  to  pay  such  debt,  and  probably  would  be  able  to 
pay  it  without  sacrifice;  and  introduces  an  element  of  litiga- 
tion in  many  transactions  which  never  appears  in  states  and 
countries  where  the  other  and  better  rule  prevails. 

§24.  THE  NEW  YORK  RULE  AS  TO  PLEDGE  FOR  ANTE- 
CEDENT DEBT. — The  leading  case  in  New  York,  Coddington 
v.  Bay,1  was  decided  by  the  Court  of  Errors,  and  involved 

660;  Bange  v.  Flint,  25  Ib.  544;  Bow-  sustains  the  decision  in  Swift  v.  Ty- 
man  v.  Vankuren,  29  Ib.  209 ;  Knox  son,  16  Pet.  15,  22,  and  I  am  inclined 
«.  Clifford,  38  Ib.  656;  Body  v.  Jew-  to  concur  in  that  decision  as  the 
son,  33  Wis.  402,  410.  plainer  and  better  doctrine."  Re- 
1  5  Johns.  54 ;  a.  c.  Johns.  637.  ferring  to  this,  Mr.  Justice  Harlan, 
Subsequently  to  writing  the  opinion  in  delivering  the  opinion  of  the  Uni- 
in  this  case,  Chancellor  Kent  added  ted  States  Supreme  Court,  in  Rail- 
to  his  Commentaries,  vol.  3,  p.  81,  n.  road  Company  ».  National  Bank,  102 
b.,  the  significant  note:  ''Mr.  Jus-  U.  8.  14,  remarks,  (p.  25):  "Of 
tice  Story,  in  his  treatise  on  Promis-  course  it  did  not  escape  Chancellor 
aory  Notes,  p.  215,  n.  1,  repeats  and  Kent's  attention  that  the  Court  in 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.        31 

a  wrongful  misappropriation  of  negotiable  instruments  as  col- 
lateral security  for  responsibility  theretofore  incurred  as  in- 
dorser  for  the  pledger,  with  no  other  consideration.  The 
pledger  was  insolvent  at  the  time.  The  pledgee,  having 
made  no  advance,  incurred  no  responsibility  upon  account 
of  the  paper,  nor  satisfied  an  existing  debt,  nor  paid  money 
or  property,  nor  created  a  debt,  was  not  a  holder  for  value, 
in  the  due  course  of  business,  and  the  collateral  notes,  or 
their  proceeds,  with  interest,  were  decreed  to  be  returned  to 
the  owner.  In  a  later  case1  heard  after  the  decision  of  the 
decision  of  the  United  States  Supreme  Court  in  Swift  v. 
Tyson,2  the  rule  announced  was  affirmed  in  another  case  of 
misappropriation  of  negotiable  instruments  by  one  holding 
full  title,  the  court  reiterating  that  a  pledgee  of  negotiable 
instruments,  as  collateral  security  for  an  antecedent  debt, 
who  had  neither  parted  with  value,  nor  relinquished  secur- 
ities previously,  held,  was  not  a  holder  for  value,  in  the 
usual  course  of  business ;  and  the  rule  was  applied  in  an- 
other case,  even  where  the  paper  had  been  received  in  pay- 
ment of  an  antecedent  debt.8  The  decisions  of  the  New 
York  courts,  from  the  leading  position  they  have  taken  on 
this  subject,  have  been  much  discussed.4  The  courts  of 

Swift  •».  Tyson  declared  the  equities  enforce  the  payment  of  the  note 
of  prior  parties  to  be  shut  out  as  well  irrespective  of  the  equities  as  be- 
when  the  note  was  merely  pledged  tween  the  original  parties.  But 
as  collateral  security  for  a  pre-exist-  may  you  not  as  well  show  a  legal 
ing  debt  as  when  transferred  in  pay-  consideration  by  showing  forbear- 
ment  of  or  extinguishment  of  such  ance  to  act  as  by  showing  an  act 
debt."  done  ?  A  damage  to  the  promisee  is 

1  Stalker  v.  McDonald,  6  Hill  93  all  that  is  necessary  to  show  a  good 

(Walworth,  Chancellor.)  consideration  for  a  promise  ;  and 

*  16  Pet.  1.  ought  not  the  same  rule  to  apply  in 

8  Francia  v.  Joseph.  3  Edw.  Ch.  protection  of  a  note  transferred  to 

182;  "Ward  v.  Howard  88  N.  Y.  74.  him?  If  the  pnrty  did  not  receive 

4  In  Blanchard  v.  Stevens,  3  Cush.  the  note  as  collateral  security,  he 

162,  168,  the  court  (Devvey,  .T.)  say:  might  have  pursued  other  remedies 

"All  the  cases  of  the  New  York  to  enforce  the  security  or  payment 

courts  concur  in  this:  that  if  the  of  the  debt.  He  might  have  obtained 

party  receiving  the  note  parts  with  other  securities,  or  perhaps  payment 

anything  valuable,  he  is  entitled  to  in  money.  *  *  The  convenience 


C2  NEGOTIABLE   COLLATERAL  SECURITIES. 

New  York  have  steadity  adhered  to  the  rulings  in  the  early 
case  of  Coddington  v.  Bay.1 

§  25.  THE  RULE  IN  MISSOURI. — In  Missouri,  an  early 
decision  declared  the  rule  as  announced  in  Swift  v.  Ty- 
son,* but  later,  a  pledgee  receiving  negotiable  instruments 
as  collateral  security  for  an  antecedent  debt,  without  more, 
was  declared  subject  to  all  antecedent  equities  existing 
between  the  original  parties.8  The  decision  .was  reversed  in 
the  United  States  Supreme  Court.4  The  Supreme  Court 
of  Missouri  refused  to  follow  the  United  States  Supreme 
Court,  and  the  rule  as  stated  has  been  followed  in  later 
cases.6  The  equities  to  which  the  holder  of  such  paper  as 
collateral  security  for  a  pre-existing  debt  are  subject  are 
confined,  however,  to  those  existing  between  the  orignal 
parties  ;  nor  can  they  be  asserted  against  such  holder  by  a 
creditor  of  the  maker  of  the  note  seeking  to  attacli  the 
same.8  The  rule  that  where  the  payee  of  a  negotiable 


aud  safety  of  those  dealing  in  nego-  that  entitles  the  holder,  on  grounds 

liable  paper  seems  to  require  and  of  commercial  policy,  to  such  cxtrn- 

justify  the  rule  that  when  a  person  ordinary  protection,  even  in  cases  of 

takes  a  negotiable  note,  not  overdue,  the  most  palpable  fraud.     It  is  im 

or  apparently  dishonored,  and  with-  exception  to  the  general  rule  of  law, 

out  notice,  actual  or  constructive,  of  and  ought  not  to  be  carried  beyond 

a  want  of  consideration,  or  othsr  de-  the  necessity  that  created  it."    Sim- 

fcnse  thereto,  whether  in  payment  of  ilar  language  is  used  in  Whistler  t>. 

a  precedent  debt,   or  as  collateral  Forstcr.  14  C.  B.,  N.  S,  248. 

security  for  a  debt,  the  holder  should  '  Sec  §23,  note  1. 

have  the  legal  right  to  enforce  the  *  Clark  v.  Loker,  11  Mo.  97. 

same  against  the  parties  thereto,  not-  'Goodman  v.    Simonds,    19  Mo. 

withstanding  such  defc'iises    miirht  106. 

have  been  effectual  as  between  the  *  Simonds  v.  Goodman,   20  How. 

original   parties."    Lord   Coleridge,  343. 

C.  J ,  referring  to  ihc  case  of  Cod-  *  Grant  v.  Kidwell,    30  Mo.  490; 

dington  v.  Bay,  supra,  after  citing  Savings  Inst.  «.  Holland,  38  Ib.  49; 

Chancellor  Kent,  says  in  liis  dissen-  Logan  v.  Smith,  62  Ib.  458;  Davis  v. 

tient  opinion,  in  Curric  v.  Misa,  L.  Carson,  G9  Ib.  609  ;  Terry  v.  Hick- 

R.    10   Ex.  153  :  "  It  is  the  credit  man,  1  Mo.  App.  119  ;  Braincrd  «. 

given  to  the  paper,  and  the  consider-  Heaves,  2  Ib.  490. 

ation  bona  fide  paid  on  receiving  it,  •  Davis  v.  Carson,  supra. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.        33 

promissory  note  indorses  the  same  before  maturity,  a  pay- 
ment mtide  to  him  before  his  indorsement  will  not  extinguish 
the  debt  so  far  as  the  indorsee  is  concerned,  unless  the 
latter  had  notice  at  the  time  of  the  indorsement,  is  also 
applied  in  cases  of  the  transfer  of  such  notes  as  collateral 
security  for  antecedent  liability.1 

§  26.  THE  RULE  IN  OHIO  AND  OTHER  STATES. — The 
question  was  elaborately  considered  by  the  Supreme  Court 
of  Ohio  in  the  leading  case  of  Roxborough  v.  Messick,2  and 
the  following  propositions  approved  :  First,  where  the  note 
of  a  third  person  is  transferred  before  due  as  collateral 
security,  and  for  value,  such  as  in  consideration  of  a  loan 
or  advancement,  or  a  stipulation,  express  or  implied,  of 
further  time  to  pay  a  pre-existing  debt,  or  the  like,  the 
holder  of  such  collateral  will  be  protected  from  infirmities 
affecting  the  instrument  before  it  was  thus  transferred  ;  and, 
Second,  when  a  debt  is  created,  without  any  stipulation 
for  further  security,  and  the  debtor,  without  any  applica- 
tion to  do  so,  voluntarily  transfers  a  negotiable  instrument 
to  secure  the  pre-existing  debt,  and  both  parties  are  left  in 
respect  to  the  pre-existing  debt  in  statu  quo,  no  new  con- 
sideration, stipulation  for  delay,  or  credit  being  given  or 
right  parted  with  by  the  creditor,  he  is  not  a  holder  of  the 
collateral  for  value,  in  the  usual  course  of  trade,  and 
receives  it  subject  to  all  the  equities  existing  against  it  at 
the  time  of  the  transfer.  These  rules  have  been  consistently 
followed  in  the  later  cases.8 

In  Alabama,  the  indorsee  of  commercial  paper,  acquiring 
it  either  before  or  after  maturity,  merely  as  collateral 
security  fora  pre-existing  debt,  receives  the  same  subject  to 
all  the  defenses  which  the  maker  could  prefer  against  the 

1  Grant  v.  Kid  well,  supra.  Kingsland  v.  Prior,  33  Ib.  19;  Bank 

«6  Ohio  St.  448;  s.  c.  11   Ib.172.  t>.  Fowler.  36  Ib    524  ;  Copelaud  ». 

3  Hatch  v.   Langdon,    7  Ohio  St.  Manton,  22  Ib.  398 ;  Pitts  v.  Fogle- 

245  ;  Gebhart  v.  Sorrels,  9  Ib.  461  ;  song,  37  Ib.  676;  Bank  ».  Bank,  Ib. 

Cleveland  v.  State  Bank,  19  Ib.  145;  208. 
3 


34  NEGOTIABLE  COLLATERAL   SECURITIES. 

payee  if  he  had  remained  the  holder.  This  right  exists  as 
to  matters  of  set-off  or  discount  as  well  as  to  defenses 
affecting  the  instrument  itself;  and  one  of  two  joint 
debtors  was  alloAved  to  set-off  a  debt  due  to  him  alone  from 
the  common  creditor.1  But  the  rule  was  limited  in 
Lehman  v.  Tallahassee  Manufacturing  Company*  declaring 
that  a  corporation  having  authority  to  issue  its  negotiable 
bonds  for  proper  corporate  purposes,  such  bonds  might  be 
used  as  collateral  security  for  antecedent  debts.  "  It  would 
unnecessarily  interfere  with  the  operations  of  the  com- 
pany (say  the  court)  to  declare  that  these  bonds  can  be 
employed  in  paying  antecedent  debts,  but  must  not  be 
hypothecated  as  security  for  such  debts,  although  by  such 
hypothecation  forbearance  can  be  obtained,  and  the  debts 
paid  eventually  without  an  absolute  unconditional  transfer 
of  the  bonds." 

Defining  a  holder  for  value  of  commercial  paper,  the 
Supreme  Court  of  Arkansas  held  that  he  must  have  either 
given  money  or  property  in  exchange  for  the  note,  or  having 
received  it  absolutely  or  unconditionally  in  payment  of  a 
pre-existing  debt,  or  relinquished  some  valuable  security  or 
some  valuable  right  on  the  sole  strength  of  the  identical 
paper  so  innocently  received  in  the  due  course  of  trade,  and 
that  when  a  note  is  transferred  only  by  way  of  indemnity 
against  probable  future  loss,  or  from  an  existing  liability,  or 
as  a  collateral  security  for  a  pre-existing  debt,  it  is  not  such 
a  holding  as  comes  within  the  rule.* 

The  decisions  in  Vermont  are  conflicting.  In  the  first 
case4  the  opinion  was  delivered  by  Judge  Redfield,  the 

1  Bank  of  Mobile  v.  Poelnitz,  61  whose  debt  is  due  must  pay  it,  or 

Ala.  147;  Thurman  v.  Stoddard,  63  become  a  bankrupt  in  a  commercial 

Ib.  333  ;  Connerly  v.  Planters'  Ins.  sense.  If.  instead  of  money  be  gives 

Co.  66  Ib.  432.  a  bill  or  note,  citber  on  time  or  sight, 

•  64  Ala.  567.  whether  this  is  payment  in  form  or 

1  Bertrand  v.  Barkham,  13  Ark.  is  given  as  collateral  to  his  debt,  he 

150.  gains  time,  and  is  saved  from  the 

4  Atkinson  v.  Brooks,  26  Vt.  569,  disgrace  and  ruin  of  stopping  pay- 

576.  Redfield  (C.  J.)  said  :  "One  ment.  Viewed  as  it  may  be,  the 


THE  PLEDGEE  A  HOLDER  FOR   VALUE.  35 

court  adopting  the  view  that  the  indorsee  of  a  bill  of  ex- 
change as  collateral  security  for  a  pre-existing  debt,  was 
prima  facie  a  holder  for  value,  and  was  entitled  to  recover 
against  an  accommodation  indorser,  not  known  to  him  to  be 
such  when  the  bill  was  taken.  In  a  subsequent  case1  the 
rule  was  applied  in  favor  of  a  surety  on  a  letter  of  credit, 
who  was  discharged  where,  without  his  consent,  aftier  the 
maturity  of  the  paper  for  the  payment  of  which  he  was 
bound,  the  holder  received  as  collateral  security  for  its  pay- 
ment, another  obligation  with  other  sureties,  payable  at  a 
future  time.  Tn  a  later  case*  the  court  (Judge  Redfield  dis- 
senting, but  filing  no  opinion)  overruled  the  previous  decis- 
ions, so  far  as  they  conflicted  with  its  then  ruling,  that  no 
binding  agreement  to  delay  the  collection  of  an  overdue 
debt  could  be  implied  from  the  receipt  by  the  creditor  from 
the  principal  debtor  of  a  note  or  other  obligation  not  yet 
due,  merely  as  collateral  security  therefor,  and  therefore  the 
pledgee  thereof  is  not  a  holder  for  value,  in  the  usual  course 
of  business. 

§  27.  THE  PLEDGEE  FOR  ANTECEDENT  DEBT,  WITH 
NEW  CONSIDERATION,  A  HOLDER  FOR  VALUE.  —  The 
pledgee  of  negotiable  instruments,  receiving  the  same  be- 
fore maturity,  indorsed  where  required,  so  as  to  become  a 
party  thereto,  as  collateral  security  for  the  payment  of  an 
antecedent  debt,  who,  by  some  affirmative  act  or  contract  in 


debtor  in  either  case    derives   the  as   collateral    security   merely,  the 

benefit  of  an  implied  understanding  creditor  doubtless  furnishes  ground 

tha  t  the  creditor  •will  not  immedi-  for  an  expected  indulgence  on  the 

ately  press  for  payment,  unless  the  original  debt.     But  the  debtor   is 

new  security  proves  unproductive.  bound  to  treat  this  as  at  all  times 

and,  if  it  does,  that  the  creditor  may  countermandable  at  the  will  of  the 

pursue  any  other  remedy."  creditor."      Judge    Redfield    again 

1  Michigan  Slate  Bank  v.  Leaven-  stated  his  views,  after  the  decision  in 

worth,  28  Vt.  209.  Austin  «.  Curtis,  in  a  note  to  the 

1  Austin  0.  Curtis,  31  Vt.  64.  The  case  of  Le  Breton  v.  Pierce  (2  Allen, 

Court  say:  "  By  taking  such  an  obli-  8)  1  Am.  L.  R.,  N.  S.  35. 
gation  [an  indorsed  negotiable  note] 


36 


NEGOTIABLE   COLLATERAL   SECURITIES. 


relation  to  such  antecedent  debt,  gives  a  new  and  valuable 
consideration  for  the  transfer  thereof,  is  regarded  in  every 
jurisdiction  as  a  holder  for  value  in  the  usual  course  of  busi- 
ness. The  pledgee,  who  thus  receives  negotiable  collateral 
securities  for  an  antecedent  debt,  is  as  much  favored,  under 
the  general  commercial  law  of  every  state,  as  the  pledgee 
who  receives  such  securities  upon  a  present  advance.  He 
is  entitled  to  enforce  the  payment  of  such  collateral  bills  or 
notes  or  bonds,  as  against  parties  bound  thereon,  and  the 
pledger,  where  he  is  an  indorser  thereof,  free  from  antece- 
dent equities.  A  valid  extension  of  time  upon  the  principal 
note  for  a  definite  period  of  time,  being  an  agreement  to  for- 
bear suit  upon  the  original  indebtedness,  is  frequently  of  the 
utmost  importance  to  the  debtor,  and  constitutes  one  of  the 
oldest  titles  of  the  law  under  the  head  of  forbearance.1  There- 
linquishment  by  the  creditor  of  some  security  of  equal  value,* 


1  Swift  v.  Tyson,  16  Pet.  1 ;  Good- 
man v.  Simonds,  20  How.  343,  371 , 
Gates  v.  Nat.  Bank,  100  U.  S.  239  ; 
Depeau  v.  Waddington,  6  Whart  219; 
Petrie  v.  Clark,  11  S.  &  R.  377;  Jen- 
nison  v.  Stafford,  1  Gush.  168; 
Wheeler  v.  Slocuin,  16  Pick.  52; 
Elting  v.  Vanderlyn.  4  Johns.  273; 
Bank  ».  Wexson,  42  N.  Y.  438 ;  Er- 
win  v.  Shaffer,  9  Ohio  St.  43;  Rox- 
borough  v.  Messick,  6  Ib.  448  ;  Holz- 
worth  v.  Koch,  26  Ib.  83 ;  First  Nat. 
Bank  v.  Fowler,  36  Ib.  524;  Kings- 
laud  v.  Pry  or,  33  Ib.  19;  Paulctte  v. 
Brown,  40  Mo.  54;  Worcester  Nat. 
Bank  v.  Cheeney,  87  111.  602,  608; 
Ryan  v.  Chew,  13  la.  589;  Interna- 
tional Bank  «.  Barber,  56  Ib.  559; 
Austin  v.  Curtis,  31  Vt.  64  ;  Atkin- 
son v.  Brooks,  26  Vt.  374;  Morton  v. 
Burn,  7  A.  &  E.  19;  Baker  v.  Walk- 
er, 14  M.  &  W.  465;  Walton  v.  Mas- 
call,  13  M.  &  W.  453. 

*  Bertrand  v.  Barkman,  13  Ark. 
150;  Payne  v,  Benseley,  8  Cal.  260; 


Goodman  v.  Simonds,  20  How.  343, 
371 ;  Bank  of  Salina  ».  Babcock,  2t 
Wend.  299  ;  Young  v.  Lee,  2  Kern. 
551 ;  Bank  v.  Vandcrhorst,  32  N.  Y. 
523  ;  Lawrence  t.  Clark,  36  Ib.  128  ; 
Pratt  v.  Cowan,  37  Ib.  440 ;  Chrysler 
v.  Renois,  43  Ib.  209;  Robbins  v. 
Richardson,  2  Bosw.  248;  Phoenix 
Ins.  Co.  v.  Church,  81  N.  Y.  222; 
Goodwin®.  Conklin,  85  N.  Y.  21; 
First  Nat.  Bank  «.  Bentley,  21  Minn. 
87;  Depeau  v.  Waddington,  6  Whart. 
220.  Notwithstanding  such  paper 
was  used  against  the  restriction  of 
the  accommodation  maker,  where 
the  pledgee  was  without  knowledge 
or  notice  of  the  facts.  Kingsland  v. 
Pryor,  33  Ohio  St.  19.  Horublowcr 
7>.  Proud,  2  B.  &  A.  327;  Rideout  v. 
Bristow,  1  Cromp  &  J.  231.  Nor  is 
the  pledgee  regarded  as  a  holder  for 
value,  where  subsequently  to  the 
pledge  of  the  collateral  paper  for  an 
antecedent  debt  the  creditor  grants 
indulgence  or  forbears  to  enforce  his 


THE   PLEDGEE   A   HOLDER    FOR    VALUE.  3r 

or  the  giving  of  a  new  consideration,1  or  discontinuing 
legal  process  against  the  debtor,*  or  where,  under  statu- 
tory provisions,  the  acceptance  of  such  collateral  security, 
payable  at  a  future  time,  is  a  waiver  of  the  right  of  attach- 
ment of  the  property  of  the  debtor  upon  the  original  indebt- 
edness,* are  valuable  considerations  to  bring  the  pledgee  of 
negotiable  collateral  securities  within  the  rule,  as  stated. 


§  28.  TRANSFER  IN  PAYMENT  OF  ANTECEDENT  DEBT. 
— A  pre-existing  debt  or  obligation  constitutes  a  valuable 
consideration,  and  one  who  takes  a  bill  or  note  of  a  third 
party  in  absolute  payment  of  such  obligation,  is  a  holder 
for  value  and  unaffected  with  equities  between  the  antece- 
dent parties  of  which  he  had  no  notice,4  even  although  it  is 


remedies  for  the  collection  of  his 
debt,  when  it  is  not  shown  that  such 
indulgence  or  forbearance  was  an 
element  of  the  contract  by  which  he 
acquired  the  same.  Feuouille  0. 
Hamilton,  35  Ala.  319. 

'King  0.  Doolittle,  1  Head,  77; 
Varnum  0.  Bellamy,  4  McLean,  87; 
White  0.  Springfield  Bank,  3  Sandf. 
222;  New  York  etc.  Works  0.  Smith, 
4  Duer,  362. 

*  Boyd  0.  Cummiugs,  17  N.  Y. 
101. 

8  Payne  0.  Bensley,  8  Cal.  260. 
The  relation  of  the  parties  not  being 
the  same  after  the  giving  of  the  col- 
lateral security  as  before,  although 
no  extension  of  time  was  given  on 
the  original  note,  and  no  new  con- 
sideration except  as  stated.  Naglce 
0,  Lynian,  14  Cal.  455. 

<Bank  0.  Hall,  6  Ala.  G39;  Pond 
0.  Lockvvood,  8  Ib.  669;  B:irney  0. 
Earle,  13  Ib.  106;  Brush  0.  Scribner, 
11  Conn.  288;  Adams  0.  Smith,  35 
Me.  324;  Holmes  0.  Smith,  16  Me. 
177;  Cecil  Bank  0.  Heald,  25  Md. 
563;  Norton  0.  Waite,  20  Me.  175; 


Emanuel  0.  White,  34  Miss.  56; 
Bostwick  0.  Dodge,  1  Mich.  413; 
Outh \vite0.  Peters,  13  Ib.  539;  Ste- 
venson 0.  Hyland,  11  Minn.  198; 
Russell  0.  Haddock,  3  Gilm.  235; 
Manning  0.  McClure,  35  111.  490; 
Mix  0.  Nat.  Bank,  91  III.  20 ;  Me- 
Knight  0.  Knisely,  25  lud.  336; 
Kirkpatrick  0.  Muirhead,  16  Pa.  St. 
123;  Rosenberg  0.  Bitting,  15  Ib. 
278;  Bardsley0.  Delp,  88  Ib.  420; 
Penn.  Bank  0.  Frankish,91  Ib.  344; 
Draper  0.  Cowles,  27  Ivans.  484;  Mc- 
Coy 0.  Hazlitt,  14  Kan.  430  ;  Med- 
berry  0.  Sopor,  17  Ib.  369;  Wheeler 
0.  Fanrot,  37  Ohio  St.  26  ;  Green  0. 
Kennedy,  11  Mo.  App.  497;  Green 
0.  Kennedy,  6  Ib.  577 ;  Reddick  0. 
Jones,  6  Ired.  (N.  C.)109;  Young  0. 
Hobbs,  5  Xev.  433  ;  Williams  0.  Lit- 
tie,  11  N  H.  66  ;  Brown  0.  Leavitt, 
31  N.  Y.  113 ;  Carlisle  0.  Wishart, 
11  Ohio,  172  ;  Bank  0.  Carrington,  5 
R.  I.  515;  King  0.  Doolittle,  1  Head. 
77;  Dixon  0.  Dixon,  31  Vt.  450; 
Quinn  0.  Hard,  43  Vt.  375;  Lee  0. 
Kimball,  45  Ib.  172;  Bank  0.  Sco- 
vii:e,  24  Wend.  115;  Bank  0.  Gilli- 


88  NEGOTIABLE  COLLATERAL  SECURITIES. 

taken  for  less  than  its  face  value,1  unless  the  discount  is  so 
great  as  to  be  of  itself  evidence  of  mala  fides.4  A V here  such 
pre-existing  debt  is  represented  by  a  note  or  other  evidence 
of  indebtedness,  the  receipt  of  the  new  note  in  absolute  pay- 
ment extinguishes  the  liability  upon  the  old  note  ;  and  this 
rule  has  been  applied  for  the  benefit  of  stockholders  of  a 
corporation  whose  individual  liability  for  debts  was  sought 
to  be  enforced  on  the  ground  that  they  were  stockholders 
at  the  time  of  the  creation  of  the  debt  for  which  the  old 
note  was  given.8 

§  29.  SUCH  TRANSFER  is  PRIMA  FACIE  AS  COLLAT- 
ERAL SECURITY. — Under  the  general  law  commercial,  in 
this  country  and  England,  the  negotiation  of  a  bill  or  note 
of  a  third  party  for  an  antecedent  debt,  does  not  operate  as 
a  discharge  of  such  debt,  unless  such  note  is  accepted  as  in 
absolute  payment.  Prima  facie,  it  is  considered  as  a  condi- 
tional payment  or  as  collateral  security,  although  by  express 
agreement  it  may  be  a  satisfaction  or  bar  of  the  original  de- 
mand.4 Nothing  short  of  an  actual  agreement  or  of  evi- 

lantl,  23  Ib.  311 ;  N.  Y.   Marbled  Barb.  159;  Parrott  t>.  Colby,  6  Hun, 

Iron  Works  v.  Smith,  4  Duer,  377;  55. 

Gould®.  Segee,  5  Ib.  2GO;  Bank  v.  4  The  Kimball,  3  Wall.  37;  Day 
Babcock,  21  Wend.  499;  Phoenix  C.Thompson  6D  Ala.  {11  Rep.  391); 
Ins.  Co.  v.  Church,  81  N.  Y.  226;  Myatt  v.  Bell,  41  Ala.  222;  Albright 
Chryslers  Renois,  43  Ib.  209;  Ward  v.  Griffin,  78  Ind.  182;  Shephard  v. 
c.  Howard,  88  Ib.  74;  Sterens  v.  Allen,  16  Kan.  184;  Cooper  v.  En- 
Campbell,  13  Wis.  376;  Heath  v.  den,  15  Ib  572:  Comstock  v.  Smith, 
Silverthorne  etc.  Co,  39  Ib.  146;  23  Me.  202;  Fowler ».  Ludwig,  34  Ib. 
Knox  v.  Clifford,  35  Ib.  651 ;  Bange  455;  Partee  v.  Bedford,  51  Miss.  84; 
«.  Flint,  25  Ib.  544;  Swift  v.  Tyson,  Young  v.  Hibbs,  5  Nev.  433;  Mc- 
16  Pet.  1;  Sawyer  v.  Prickett,  19  Lean  v.  Walker,  10  Johns.  471;  Mui- 
Wall.  147.  don  v.  Whitlock,  1  Cow.  290;  Com. 

1  Bange  v.  Flint,  25  Wis.  544.  Exch.  Ins.  Co.  v.  Babcock,  57  Barb. 

'Heath  ®.  Silverthorne,  etc.  Co.,  231:  Hunter  v.  Moul,  98  Pa.  St.  13; 

89  Wis.  146.  Leas®.  James,  10  S.&  R.307;  Wallace 

'Wheeler  «  Faurot,  37  Ohio  St.  v.  Foreman,  4  Watts,  380;  Stone  v. 

26 ;  Castleman  v.   Holmes,   4  J.  J.  Miller,  16  Pa.  St.  450;  Mclutyre  v. 

Marsh,  1 ;  Milliken  v.  Whitchouse,  Kennedy,  29  Ib.  448;  Brown  v.  Scott, 

49  Me.  527;  Fisher  v.  Marvin,  47  51  Ib.  357;  League  v.  Waring,  85  Ib. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE. 


39 


dence  from  which  a  positive  inference  can  be  drawn,  will 
make  such  transaction  a  discharge  of  the  debtor  upon  the 
first  claim.1  The  actual  intention  of  the  parties  will  govern. 
Evidence  is  admitted  to  show  that  the  negotiation  of  such 
paper  was  as  collateral  security  and  not  as  payment.9  The 
burden  of  showing  that  the  receipt  by  the  creditor  of  a  note 
of  a  third  person  constituted  an  absolute  payment  of  an 
antecedent  debt,  is  upon  the  party  so  alleging.8  And  if 
such  paper,  properly  indorsed,  is  shown  to  have  been  nego- 
tiated as  conditional  payment,  and  by  the  gross  neglect  of 
the  creditor  holding  the  same  to  apply  in  time  to  the  maker 
thereof,  the  amount  of  the  note  is  lost,  the  antecedent  debt 
is  extinguished.4 


244;  Scbauh  v.  Arrowsmith,  9  N".  J. 
Eq.  323;  Freeholders  v.  Thomas,  20 
Ib.  41 ;  Hutchinson  v.  Swartsweller, 
32  Ib.  205;  Wildrich  v.  Swain,  34 
Ib.  167;  Swain  0.  Frazler,  35  Ib. 
326  (14  Rep.  277) ;  Morris  v.  Harveys, 
75  Va.  726  (13  Rep.  480);  Butts  v. 
Dean,  2  Met.  76;  Parhani  Machine 
Co.  v.  Brock,  113  Mass.  195;  Dows  v. 
Swett,  134  Mass.  140  (15  Rep.  466); 
Valpy  0.  Oakley,  16  Q.  B.  919;  Miles 
t>.  Gorton,  2  Cr.  &  M.  512;  Sibree  v. 
Tripp,  15  M.  &  W.  23;  Belshaw  c. 
Bush,  11  C.  B.  206.  In  Day  v. 
Thomnson,  supra,  there  was  an  ex- 
press agreement  by  the  creditor  to 
take  a  N.  Y.  draft  "in  payment 
of  bill  in  full."  The  bank  failed  be- 
fore presentment,  but  the  effect  of 
the  receipt  of  the  draft  as  payment 
was  not  avoided  thereby.  Lowry  «. 
Murrell,  2  Port.  280;  Carriere  ». 
Ticknor,  26  Ala,  571;  Fulford  v. 
Johnson,  15  Ib.  385.  The  receipt  of 
a  non-negotiable  note  will  in  no 
sense  operate  as  a  payment  of  the 
antecedent  indebtedness,  unless  such 
is  the  express  intention  of  the  par- 


ties. Bristol  Co. «.  Probasco,  64  Ind. 
406;  Stout  v.  Stout,  77  Ind.  541. 

1  Mclntyre  v.  Kennedy,  29  Pa.  St. 
448. 

8  McLean  v.  Walker,  10  Johns. 
471;  Comstock  v.  Smith,  23  Me.  202; 
Partee  v.  Bedford,  51  Miss.  84; 
Stone  v.  Miller,  16  Pa.  St.  450; 
Sykes  v.  Gerber,  98  Ib.  179;  Butts 
v.  Dean,  2  Met.  76;  Parham  Ma- 
chine Co.  v.  Brock,  113  Mass.  195; 
Dows  v.  Swett,  supra. 

8  In  re  Parker,  11  Fed  Rep.  397. 

4  Gallagher's  Exec,  v  Roberts,  2 
Wash.  191.  As  where  R  person  re- 
ceives a  promissory  note  drawn  to 
his  own  order  for  a  debt  due  to  him, 
and  gives  a  receipt  wherein  he  states 
that  he  has  settled  and  received  pay- 
ment in  full  by  taking  the  note,  and 
subsequently  brings  suit  upon  such 
note  and  judgment  is  given  for  the  de- 
fendant. Such  judgment  is  a  bar  to 
any  subsequent  action  upon  the  orig- 
inal demand,  the  subject  of  both 
suits  being  in  fact  the  same.  Sykaa 
v.  Gerber,  98  Pa.  St.  179.  ' 


40  NEGOTIABLE  COLLATERAL  SECURITIES. 

§  30.  THE  RULE  IN  MASSACHUSETTS  AND  VERMONT. 
— The  rule  in  Massachusetts  is,  that  where  a  debtor  gives 
his  own  negotiable  promissory  note  to  his  creditor  for  the 
amount  of  a  pre-existing  simple  contract  debt,  it  is  prima 
facie  a  payment  or  satisfaction  of  the  debt.1  If  such  note 
be  given  for  an  amount  due  on  an  execution,  and  the  execu- 
tion be  discharged,  it  is  prima  facie  evidence  of  payment.8 
This  presumption  is  founded  upon  the  consideration  that 
when  a  note  is  given  for  goods,  it  is  equally  convenient  for 
the  creditor  to  sue  on  the  note  as  on  the  original  considera- 
tion, and  no  reason  exists  for  any  further  vitality  of  the 
original  claim.*  The  presumption  is  one  of  fact,  and  not  of 
law,  and  may  be  rebutted,4  and  does  not  apply  to  non- 
negotiable  paper,*  nor  does  it  exist  where  the  creditor, 
upon  taking  such  new  note,  retains  the  obligations  of  third 
parties  held  by  him,8  nor  upon  receiving  a  new  note  and 
mortgage  where  the  note  surrendered  was  secured  by  mort- 
gage also.11  But  if  such  new  note  and  mortgage  is  taken 
for  an  old  note  unsecured,  which  is  surrendered,  it  is  pre- 
sumed to  be  payment.8  Where  such  new  note  is  taken  for  a 
pre-existing  debt,  secured  by  mortgage,  it  is  only  presump- 
tive evidence  of  payment,  and  a  question  of  fact  for  the 
jury.9  Checks  of  a  third  party  dishonored,  and  not  paid, 
are  not  payment.10 

Under  the  decisions  of  the  Supreme  Court  of  Vermont, 
a  promissory  note,  either  of  the  debtor  or  of  a  third  person, 
given  in  settlement  of  an  account,  or  for  a  pre-existing 
debt,  is  priraa  facie  payment.11  Such  presumption  may  be 

1  Dodge    V.  Emerson,  131  Mass.  •  Adams  v.  Jenkins,  16  Gray,  146. 

467;  Timelier  0.  Dunsmore,  5Ib.  299.  •  Dodge    t>.  Emerson,   131   Mass. 

»  Day  v.  Hickney,  14  Allen,  255.  467. 

»  Curtis  v.  Hubbard,  9  Met.  322.  »  Small  ».  Franklin  Ins.  Co.  99 

4  Medledge   v.  Boston  Iron  Com-  Mass.  277. 

pany,  5  Cush.  170.  "  Hutchins  v.  Olcott,  4  Vt.  549; 

6  Rowland  v  Coffin,  9  Pick.  54.  Torrey  v.  Baxter,  13  Ib.  452;  Farr  v. 

« Butts  v.  Dean,  2  Met.  76;  Ap-  Stevens,    26   Ib.  299;    Collamcr    t>. 

pleton  v.  Parker,  15  Ib.  173.  Langdon,  29  Ib.  32;  Wait  v.  Brcw- 

» Taft  v.  Boyd,  13  Allen,  84.  ster,  31  Ib.  510. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.        41 

rebutted  by  evidence  that  the  note  was  not  received  as  pay- 
ment, the  question  whether  it  was  so  received  being  one  of 
fact,  depending  upon  the  contract  or  understanding  of  the 
parties.1  So,  a  misunderstanding  whether  a  third  party  is 
bound  will  defeat  the  presumption,2  and  fraud  of  course  wih 
defeat  it.3  But  it  is  immaterial  that  the  former  note,  repre- 
senting the  pre-existing  indebtedness,  should  not  have  been 
surrendered  on  the  giving  of  the  new  note.  The  retention 
of  the  original  note  will  not  affect  the  transaction  as  one  of 
payment,  if  it  be  so  in  fact.4 

1  Follett  v.  Steele,  16  Vt.  30;  Fair  •  Hutchins  v.  Olcott.  Fair  v.  Stev- 

v.  Stevens,  and  Collamerfl.  Langdon,  ens,  Wcmet  v.  Mississquoi  Co ,  Wait 

supra.  v.  Brewster,  supra. 

1  Dickinson  v.  King,   28  Vt  378;  «  Dixon  fl.Dixon.  31  Vt.  450. 
Wemet  v.  Mississquoi  Co.  46  Ib.  460; 
"Wait  v.  Brewster,  supra. 


42  NEGOTIABLE   COLLATERAL  SECURITIES. 


CHAPTER  IV. 

ACCOMMODATION  PAPER  AS  COLLATERAL  SECURITY. 

§31.  The  title  of  the  pledgee  of  accommodation  paper. 

32.  The  paper  included  in  the  term  "  accommodation." 

33.  As  collateral  security  for  a  present  advance. 

34.  As  collateral  security  for  a  pre-existing  debt. 

35.  The  rule  adopted  in  New  York. 

36.  The  rule  in  Ohio  and  Pennsylvania. 

37.  The  English  rule. 

38.  Misappropriation  of  accommodation  paper  as  collateral  security. 

39.  Such  pledges  not  sustained  as  collateral  security  for  antecedent  debt, 

without  more. 

40.  Pledgee  chargeable  with  notice  of  fraud  or  forgery  can  not  recover. 

41.  Pledge  of  accommodation  paper,  after  maturity,  supported. 

42.  The  amount  of  recovery  by  the  pledgee. 

§31.  THE  TITLE  OF  THE  PLEDGEE  OF  ACCOMMODATION 
PAPER. — The  title  of  the  pledgee,  receiving  accommodation 
paper  as  collateral  security,  as  a  holder  for  value  in  the 
usual  course  of  business,  where  there  has  been  no  restriction 
placed  upon  the  use  of  such  paper  by  the  party  signing  or 
indorsing  the  same,  is  especially  favored  in  commercial  law. 
The  use  of  such  paper  as  collateral  security  for  a  present 
advance,  or  for  an  antecedent  debt,  even  in  states  where 
ordinary  commercial  paper  taken  as  collateral  security  for 
such  antecedent  debt,  without  more,  is  subject  to  equities, 
is  supported,  and  the  obligation  of  the  accommodating  party 
who  has  held  himself  out  to  the  world  as  absolutely  bound 
to  every  person  who  shall  take  the  note  for  value,  is  enforced 
in  his  favor.1  The  pledgee,  receiving  such  paper,  after  ma- 

1  Logan  v.  Smith,  62  Mo.  455;  Con-  Bank,  84  Ib.  420, 436 ;  G  rocer's  Bank 
tinental  Nat.  Bank  «.  Townsend,  87  v.  Penfield,  69  N.  Y.  502;  Miller  v. 
N.  Y.  9;  Southwick  v.  First  Nat.  Larned,  103  111.  562;  Pitts  v.  Fogle- 


ACCOMMODATION  PAPER.  43 

turity,  as  collateral  security  where  the  accommodated  party 
has  been  allowed  to  retain  the  same  by  the  maker,  is  pro- 
tected, as  his  continued  possession  thereof  creates  a  pre- 
sumption that  he  has  a  continued  right  to  use  the  paper.1 
Where,  however,  the  act  of  pledge  of  accommodation  paper 
is  a  fraud,  and  in  violation  of  restrictions  placed  upon  its 
use,  the  pledgee  for  value,  without  notice,  is  restricted 
in  his  recovery  against  the  accommodating  party  to  the 
amount  of  his  loan;  and  if  chargeable  with  notice  of  the 
fraud,  acquires  no  title  whatever  as  against  the  defrauded 
party.8 

.  §32.  THE  PAPER  INCLUDED  WITHIN  THE  TERM  "AC- 
COMMODATION."— Accommodation  paper  includes  a  negotia- 
ble or  non-negotiable  bill  or  note  made  or  indorsed  by  a 
person  without  consideration,8  and  includes  the  handing  by 
a  person  of  his  signature  upon  a  blank  piece  of  paper  to 
another,  authorizing  him  to  fill  it  up,  which  being  done,  as 
between  the  accommodating  party  and  an  innocent  pledgee 
before  maturity,  without  notice,  and  for  a  valuable  advance 
in  the  usual  course  of  business,  the  accommodating  party  is 
estopped  to  deny  his  signature.4  Where  a  note  is  signed 


song.  37  Ohio  St.  676;  Matthews  v.  208;  Miller  v.  Lamed,  103  111.  562; 

Rutherford,  7  La.  Ann.  225;  Lord  v.  Davis  v.   Randall,  115    Mass.  547; 

Ocean  Bank,  20  Pa  St.  384  Agawam  Bank  v.  Strever,  18  K  Y. 

1  Connerly  v.  Planters'  Ins.  Co.  66  502;  Richardson  v.  Rice,  9  Baxter 

Ala.  432;  Dunn  v.  Weston,  71  Me.  290;  Baldwin  ».  Ely.   9  How.    580; 

270;  Miller  v.  Lamed,  103  111.  562;  Matthews   v.   Finley,    7    La.    Ann. 

Silverman    v.  Bullock,    98  Ib.    11;  225;  Hey  wood  v.  Watson,  4  Bing. 

Robbins  v.  Richardson,  2  Bosw.  283;  496.     "An  accommodation  bill   or 

Harrington  v.  Dow,  3  Robt.  275.  note  is  one  to  which  the  accommo- 

*  Maitland  v.  Bank,  40  Md.  540;  dating  party  has  put  his  name  with- 
Allaire  «.  Hartshorn,  21    N.  J.  L.  out  consideration,  for  the  purpose  of 
665;  Dresser  D.  Railroad  Co.  93  U.  accommodating    some    other  party 
S.  92,  96;  Fisher  v.  Fisher,  98  Mass.  who  is  to  use  it  and  is  expected 
303 ;  Stoddard  v.  Kiraball,  6  Cush.  to  pay  it. '    Byles  on  Bills,  Shars- 
469;  Small  v.  Smith,  1  Denio,  583.  wood's  Ed.  237. 

*  Dayton  National  Bank  v.  Mer-  4  Goodman  «.  Simonds,  20  How, 
chants'  National  Bank,  37  Ohio  St.  361;  Violet  v.  Patton,  5  Crunch  142; 


44  NEGOTIABLE   COLLATERAL   SECURITIES. 

by  two  persons  jointly,  one  being  an  accommodation  maker, 
and  the  other  receives  the  same  and  indorses  it  before  matu- 
rity to  a  bona  fide  holder  for  value,  in  the  usual  course  of 
business,  the  accommodating  party  is  bound.1  Nor  is  the 
character  of  accommodation  paper  changed  because  the 
makers  or  indorsers  thereof  are  protected  against  personal 
loss  by  securities  alleged  to  be  equitably  owned  by  the 
party  accommodated.*  Nor  is  it  any  defense  for  the  accom- 
modation maker,  when  it  is  sought  to  enforce  his  obligation, 
that  the  creditor  holds  other  securities  more  than  sufficient 
for  his  protection.1 

§33.  As  COLLATERAL  SECURITY  FOB  A  PRESENT  AD- 
VANCE.— Accommodation  paper,  in  the  hands  of  the  party 
accommodated,  without  restrictions  as  to  its  use,  may  be 
negotiated  as  collateral  security  for  a  debt  then  created  by 
the  holder,  or  to  become  due,  or  in  payment  of  antecedent 
debt,  and  the  person  making,  indorsing  or  accepting  the  same 
as  an  accommodation  party,  has  no  defense  as  against  the 
pledgee  for  value,  before  maturity,  without  notice  of  equi- 

Bank  of  Pittsburgh  v.  Neal,  22  How.  worth,  80  Vt.  11;  Frank  t>.  Little- 

107;    Davidson  v.  Lanier.  4  Wall.  field,  33  Gratt.  384;  Snyder  v.  Van- 

457;  Michigan  Bank  v.  Eldred,  9  Ib.  Dcurcn,  46  Wis.  602;  Collett  v.  Em- 

544,  552;  Angle  v.  N.  W.  Ins.  Co.,  melt,  1  H.  Bl.  313;  Montague  v.  Per- 

92  U.^S.  330;  Bank  v.  Kimball,  10  kins,  22  E.  L.  &  E.  516;  s.  c.  22  L. 

Cush.  373;  Joseph  v.  Nat.  Bank,  17  J.  C.  P.  187. 

Kan. 756;  Ives  v.  Farmers' Bank,  2  'First  Nat.  Bank  r.  Fowler,   36 

Allen  236;  Mnhonc  v.  Central  Bank,  Ohio  St.  524;  Wallace  v.  Jewell,  21 

17  Ga.  Ill;    Rich*.    Starbuck,  51  Ib.  163;    Boyd    v.    Brotherson,   10 

Ind.  87;  Spitler  v.  James  32Ib.202;  Wend.  93;  Pearson  v.   Stoddard,  9 

Coburnfl.  Webb,  56  Ib.  96;  Jones  v.  Gray,  199;    McCrary  «.  Cashcy,  27 

Shelbyville  Ins.  Co..    1    Mete.    58;  Geo.  54;   Taylor  v.  Strickland,  87 

Bank  v.  Curry,  2  Dana  142;  Dunham  Ala.  642 ;  Kelsey  v.  Hibbs,  13  Ohio 

«.  Clogg,  30  Md.  284;  Hardy  v.  Nor-  St.  340;   Goldsuede  v.  Swan,  1  W. 

ton,  66  Barb.  527;  Seymour  v.  Mick-  H.  &  G.  154. 

ey,  15  Ohio  St.  573;  Grissora  t>.  File,  'Miller  «.  Lamed,   103  111.  562; 

1  Head.  332;  Waldron  v.  Young,  9  Silverman  v.  Bullock,  98  Ib.  111. 

Heisk.777;  Nichol  v.  Bate,  10  Ycrg.  »  Lyon  v.  Huntington  Bank,  12  S. 

429;    Diercks  v.  Roberts,  13  S.  C.  &  R.  61. 
838,  Michigan  Ins.   Co.  v.  Leaven- 


ACCOMMODATION   PAPER.  45 

ties.1  The  Supreme  Court  of  Ohio,  in  a  recent  case,*  stated 
the  rule  as  follows :  "  Where  one,  not  induced  by  fraud,  in- 
dorses a  negotiable  promissory  note  for  the  accommoda- 
tion of  another,  without  restriction  as  to  its  use,  a  third 
person  who  receives  it  before  due  as  collateral  security  for 
a  debt  to  become  due  from  the  person  for  whom  the  indorse- 
ment was  made,  and  subsequently  prosecutes  an  action 
against  such  indorser,  will  not  be  affected  in  respect  to  his 
right  to  recover,  by  the  fact  that  such  defendant  is  an 
accommodation  indorser.  The  obligation  of  the  indorser  in 
such  case  is  held  to  be  the  same  whether  the  indorsement 
was  for  value  received  or  for  accommodation."8  A  payee 
of  an  accommodation  note,  under  an  agreement  with  the 
maker,  gave  collateral  security  to  the  person  discounting 
the  note,  who  had  no  knowledge  that  it  was  accommodation 
paper.  Afterwards,  the  payee  agreed  that  the  collateral 
securities  might  be  held  to  secure  other  obligations.  The 
accommodation  maker  was  held  not  entitled  to  require  the 
application  of  the  collateral  securities  to  the  accommodation 
note  as  against  the  party  discounting  it.4 

§34.  As  COLLATERAL  SECURITY  FOR  AN  ANTECEDENT 
DEBT. — The  freedom  of  use  and  credit  accorded  to  accom- 
modation paper,  when  given  to  the  accommodated  person 
without  restriction  upon  its  use,  has  led  it  to  be  treated,  when 
indorsed  and  delivered  as  collateral  security  for  antecedent 
debt,  with  greater  favor  in  connection  with  such  use  than 
the  ordinary  negotiable  instrument  issued  for  value.  The 
undertaking  of  the  accommodating  party  is  liberally  con- 
strued. Even  in  the  states  where  the  restricted  rule  pre- 


1  Logan  v.  Smith,  62  Mo.  455.  County  Bank  v.  Lane,  8  Ohio   St. 

J  Pitts  v.  Foglesong,  37  Ohio   St.  405;  Erwin  v.  Schaffer,  9  Ib.   43; 

676.  Knox  County  Bank  v.  Lloyd.  18  Ib. 

8  Stone  v.   Vance,    6  Ohio,    246;  353;    Kingsland  v.  Pryor,  33  Ib.  19. 

Riley  v.  Johnson,  8  Ib.  526  ;    Will-  4  Tyler  «.  Bussey,  3  MacArth.  (D. 

iams  v.  Bosson,  11  Ib.  62  ;   Clinton  C.),  344. 
Bank  v.  Ayres,  16  Ib.  282;    Portage 


46 


NEGOTIABLE   COLLATERAL   SECURITIES. 


vails,  under  which  the  indorsee  of  ordinary  commercial 
paper  receiving  the  same  as  collateral  security  for  an  ante- 
cedent debt,  without  more,  is  not  a  holder  for  value,  the 
pledgee  of  accommodation  paper,  receiving  the  same  as  col- 
lateral security  under  the  like  circumstances,  before  due, 
properly  indorsed,  and  without  notice,  is  a  holder  for  value, 
in  the  usual  course  of  business,  and  entitled  to  enforce  the 
same  free  from  antecedent  equities.  Nor  is  it  necessary  that 
the  pledgee  of  accommodation  paper  under  such  circumstan- 
ces should  have  parted  with  value,  in  order  to  be  within  the 
rule.1  The  existence  of  the  debt  secured  is  a  sufficient 
consideration  to  support  the  title  of  the  pledgee  to  the  col- 
lateral securities.* 

§  35.    THE  RULE   ADOPTED  IN  NEW  YORK. — The  use 
of  accommodation  paper  as  collateral  security  for  an  aiite- 


1  Continental  Nat.  Bank  v.  Towns- 
end,  87  N.  Y.  9 ;  South  wick  v.  First 
Nat.  Bank,  84  Ib.  420,436;  Freund 
t>.  Bank,  76  Ib.  352 ;  Grocers'  Bank 
v.  Penfield,  69  N.  Y.  502;  Schepp  v. 
Carpenter,  51  N.  Y.  602  ;  Bank 
of  Rutland  v  Buck,  5  "Wend.  66 ; 
Grandin  ».  LeRoy,  2  Paige,  509; 
Lathrop  v.  Morris,  5  Sandf.  7;  De- 
Zeng  v.  Fyfe,  1  Bosw.  335;  Bobbins 
t>.  Richardson,  2  Ib.  248  (in  which 
there  was  a  surrender  of  other  secur- 
ities) ;  Boyd  v.  Cummings,  17  N.  Y. 
101  ;  Mohawk  Valley  v.  Corey,  1 
Hill,  513;  Matthews  v.  Rutherford, 
7  La.  Ann.  225 ;  Appleton  v.  Donald- 
son, 3  Pa.  St.  386;  Lord  v.  Ocean 
Bank,  20  Pa.  St.  384;  Works.  Ease, 
84  Ib.  138 ;  Cummings  t>.  Boyd,  83 
Ib.  372.  But  in  Cummings  v.  Boyd, 
the  Court  say  that  the  holder  of  an 
accommodation  note  pledged  as  col- 
lateral security  for  an  antecedent 
debt  is  nota purchaser  for  value.and 
the  note  in  his  hands  may  be  im- 
peached for  fraud  in  its  making  or 


procurement.  Ashton's  App.  73  Ib. 
153.  Kimbro  v.  Lytle,  10  Yerg.  417; 
Miller  v.  Lamed,  103  111.  562  ;  Pitts 
v.  Foglesong,  37  Ohio  St.  676.  The 
rule  in  Alabama  is  to  the  contrary : 
that  the  holder  of  accommodation 
paper  as  collateral  security  for  a 
pre-existing  debt  simply  is  not  a 
holder  for  value,  nor  entitled  to  pro- 
tection against  equities  and  defences 
existing  between  prior  parties  of 
which  he  had  no  notice.  Connerly 
v.  Planters'  Ins.  Co.,  66  Ala.  432. 
The  Supreme  Court  follow  the  es- 
tablished rule  in  Alabama  in  its  de- 
cision, acknowledging  that  the 
weight  of  authority  is  the  other  way, 
and  saying:  "Whether  the  rule  (as 
to  accommodation  paper)  could  be 
adopted  here  without  infringing 
upon  the  rule  so  long  adopted  that 
it  can  not  be  departed  from  without 
disturbing  transactions  which  may 
have  commenced,  we  do  not  consid- 


er.' 


Lathrop  c.  Morris,  5  Sandf.  7. 


ACCOMMODATION   PAPER.  47 

ceclent  debt,  without  any  further  consideration,  is  approved 
in  New  York.  The  rule  in  such  cases  was  stated  in  the 
Grocers'  Bank  v.  Penfield,1  where  it  was  held :  "  Where 
a  promissory  note  is  made  for  the  accommodation  of  the 
payee,  but  without  restriction  as  to  its  use,  an  indorsee 
taking  it  in  good  faith  as  collateral  security  for  an  ante- 
cedent debt  of  the  payee  and  indorser  without  other  con- 
sideration, occupies  the  position  of  holder  for  value,  and  can 
recover  thereon  against  the  maker.  The  precedent  debt  is 
a  sufficient  consideration  for  the  transfer,  and  no  new  con- 
sideration need  be  shown.  It  is  only  where  the  note  has 
been  diverted  from  the  purpose  for  which  it  was  intended 
by  the  payee,  or  some  other  equity  exists  in  favor  of  the 
maker  that  it  is  necessary  that  the  holder  should  have 
parted  with  value  on  the  strength  of  the  note,  in  order  to 
enforce  the  same." 

An  accommodation  note  was  received  in  good  faith  and 
without  notice  of  equities,  other  notes  being  surrendered  to 
the  payee.  This  was  a  good  consideration,  the  parties  re- 
ceiving the  same  being  bona  fide  holders,  and  the  fact  that 
the  note  was  executed  for  the  accommodation  of  the  payee, 
and  fraudulently  diverted  from  the  use  intended,  forming  no 
defense.9  The  rule,  as  thus  limited,  is  recognized  in  several 
cases  in  New  York.8  A  surety  is  liable  on  an  accommoda- 
tion note  where  used  as  collateral  security  for  an  antece- 
dent debt.4  And,  in  another  case,5  where  promissory  notes, 
made  for  accommodation,  without  restriction  as  to  their 
use,  were  transferred  to  the  plaintiff  on  the  last  day  of 
grace,  during  banking  hours,  to  be  held  as  collateral 
security  for  indebtedness  of  the  payee  to  the  pledgee,  and 

1  69  N.  Y.  502.  55  Ib.  24 ;  Freund  v.  Bank,  76  N.  Y. 

»  Nickerson  v.  Rager,  84  K  Y.  352;  Soutliwick  v.  First  Nat.  Bank, 

675;  s.c.  76  N.  Y.  279.  Ib.  349. 

*  Spencers.  Ballou,  18  K  Y.  331;  4  Bank  of   Rutland    v.    Buck,    5 

Park  Bank  v.  Watson,  42  Ib.   490;  "Wend.  66. 

Schepp  v.  Carpenter,  51  Ib.  602;  6  Continental  Nat.  Bank  v.  Towns- 
Merchants'  Nat.  Bank  v.  Comstock,  end,  87  N.  Y.  9. 


48  NEGOTIABLE   COLLATERAL   SECURITIES. 

when  collected  the  proceeds  to  be  applied  on  such  indebt- 
edness, the  pledgee  was  regarded  as  a  holder  for  value. 
The  notes  were  transferred  before  maturity,  the  maker 
having  the  whole  of  the  last  day  of  grace  in  which  to  pay 
them.1  A  different  view  has  been  expressed  in  a  Massa- 
chusetts case.* 


§  36.  THE  RULE  IN  OHIO  AND  PENNSYLVANIA. — The 
Supreme  Court  of  Ohio  considered  the  liability  of  an  ac- 
commodating indorser,  where  the  paper  has  been  used  as 
collateral  security  for  an  antecedent  debt,  for  the  first  time 
in  the  case  of  Pitts  v.  Foglesong,1  and  so  far  extended  the 
rule  declared  in  Roxborough  v.  Messick4  as  to  declare  that, 
in  the  absence  of  fraud,  the  indorser  of  a  negotiable  promis- 
sory note,  owned  by  another,  and  indorsed  for  the  accom- 
modation of  the  latter,  without  restriction  as  to  ;ts  use,  is 
liable  to  an  indorsee  who  receives  it  in  good  faith  from  the 
owner  before  due  as  collateral  security  for  an  antecedent 
debt  of  such  owner,  although  there  be  no  other  considera- 
tion for  such  collateral.  In  Pennsylvania,  the  maker  of  an 
accommodation  note  cannot  set  up  a  want  of  consideration 
as  a  defense  against  it  in  the  hands  of  a  third  person  holding 
it  merely  as  collateral  security  for  an  antecedent  debt  of  the 
payee.  The  man,  as  observed  by  the  court  in  Lord  v.  Ocean 
Bank8  who  chooses  to  put  himself  in  the  front;  of  a 
negotiable  instrument  for  the  benefit  of  his  friend  must 
abide  the  consequences,  and  has  no  more  right  to  complain 
if  his  friend  accommodates  himself  by  pledging  it  for  an  old 
debt  than  if  he  had  used  it  in  any  other  way.  Accommoda- 
tion paper  is  a  loan  of  the  maker's  credit  when  made  with- 


1  Continental  Nat.  Bank  v.  Towns-  Barb.   104;    Cothart  v.  Ballard.  41 

end,  supra;  Bank  v.  Penfield,  69  N.  Ib.  33. 

Y.    502;    Osborne   c.    Moncure,    3         »  Pine  v.  Smith,  11  Gray,  88. 
Wend.  170  ;  Hopping  v.  Quinn,  12         •  87  Ohio  St.  670 
Ib.  517;   Cayuga  Bank  v.  Hunt,  2          «  6  Ib.  448. 
Hill,  635;  Smith  v.  Aylesworth,  40          •  20  Pa.  St.  334. 


ACCOMMODATION  PAPER.  49 

out  restriction  as  to  the  manner  of  its  use.1  The  fact  that 
the  pledgee  holds  other  security  more  than  sufficient  to 
cover  his  debt  is  no  defence  for  the  accommodation 
maker.*  Where  however  such  paper  is  misappropriated  by 
an  agent  as  collateral  security  for  his  own  antecedent  debt, 
the  pledgee  is  not  regarded  as  a  holder  for  value  in  the 
usual  course  of  business.* 

§  37.  THE  ENGLISH  RULE. — The  like  rules  are  applied 
by  English  courts,  in  considering  the  relations  of  parties  to 
accommodation  bills  and  notes  as  to  other  paper.  The 
pledgee  thereof  when  a  party  to  the  instrument,  taking  the 
same  before  maturity  in  good  faith  for  value  advanced  and 
without  notice  of  equities,  is  a  holder  for  value,  in  the 
usual  course  of  business.  The  negotiation  of  such  paper  as 
collateral  security  for  an  antecedent  debt  was  sustained  by 
Baron  Parke  in  Crofts  v.  Beale,4  although  the  note  in  the 
case  being  non-negotiable  in  form  was  not  enforced  against 
the  surety.  In  Watson  v.  Russell,  in  the  Queen's  Bench,* 
the  rule  was  announced  that  a  party  who  by  means  of  a 
false  pretence,  or  condition  which  he  does  not  fulfil,  pro- 
cures another  party  to  give  him  a  note  or  acceptance  in 
favor  of  a  third  person,  to  whom  he  pays  it,  and  who  re- 
ceives it  bona  fide  for  value,  the  accommodation  maker  or 
acceptor  remains  liable  to  pay  the  same,  because  his  ac- 
ceptance or  transfer  of  the  same  imparts  value  prima  facie, 
and  he  can  only  relieve  himself  of  his  promise  to  pay  the 
holder  by  showing  that  he  is  not  a  holder  for  value,  or  that 
he  received  the  instrument  in  bad  faith,  or  with  notice  of 
its  infirmity. 

1  Work  v.  Ease,  34  Ib.  138;  Apple-  »  B.  &  S.  34.  40.    The  chief  jus- 
ton  v.  Donaldson,  3  Ib.  381.  tice,  however,  thought  the  extent  of 

*  Lyon  v.  Huntington  Bank,  12  S.  the  recovery,  where  the  same  had 
&  R.  61 ;  Lord  v.  Ocean  Bank,  20  Pa.  been  pledged  as  collateral  security, 
St.  384.  should  be  limited  to  the  extent  of 

8  Royer  v.  Keystone  Nat.  Bank,      the  debt  which  the  accommodation 
83  Pa.  St.  248.  paper  was  given  to  secure. 

*  Crofts  v.  Beale,  11  C.  B.  K  S.  172. 

4 


50  NEGOTIABLE  COLLATERAL  SECURITIES. 

§38.  MISAPPROPRIATION  OP  ACCOMMODATION  PA- 
PER AS  COLLATERAL  SECURITY. — The  pledgee  of  commer- 
cial paper  given  for  accommodation,  receiving  the  same 
from  the  holder  thereof  before  maturity,  in  good  faith,  for 
value,  and  without  notice  of  'any  equities  or  fraud,  although 
the  accommodation  maker  has  imposed  secret  restrictions 
upon  its  use,  and  the  act  of  pledge  is  a  misappropriation  by 
the  accommodated  party,  is  a  holder  for  value,  in  the  usual 
course  of  business,  and  entitled  to  enforce  such  paper  to  the 
whole  amount  of  the  face  thereof,  as  against  all  parties 
thereto.  This  is  an  undoubted  right  of  a  pledgee  for  value, 
but  where  such  paper  is  received  from  the  accommodated 
party,  and  exceeds  in  its  value  the  amount  of  the  loan,  and 
the  pledgee  is  liable  over  to  nobody  for  the  surplus,  if  he 
should  collect  the  whole,  his  recovery,  as  against  the  ac- 
commodating party,  may  be  equitably  restricted  to  the  ac- 
tual advance  and  proper  charges.  In  any  other  event,  as  a 
holder  for  value,  he  is  entitled  to  recover  the  whole  amount 
of  the  collateral  accommodation  notes,  the  presumption  be- 
ing that  full  value  was  given  therefor.1  Even  where  re- 
ceived with  knowledge  of  misappropriation  for  a  greater 
sum  than  authorized,  the  pledgee  is  allowed  to  recover, 
having  advanced  value  thereon,  to  the  extent  of  the  amounts 
then  remaining  due,  to  secure  the  payment  of  which  the 
collateral  accommodation  notes  were  authorized  to  be 
pledged.9  In  cases,  however,  where  fraud  intervenes,  and 
the  accommodation  paper  is  taken  for  value  as  collateral  se- 
curity by  a  pledgee  chargeable  with  full  notice  of  the  fraud, 
he  can  not  recover,  not  being  a  bona  fide  holder.* 

To  defeat  the  title  of  the  bona  fide  pledgee  of  accom- 


1  Williams  «.  Smith,  2  Hill.  301;  Y.  166;  Small  t.  Smith,  Denio,  583; 

Allaire    v.  Hartshorn,  21  N.  J.  L,  Collins  v.  Gilbert.  94  U.  S.  753,  761. 

665;  Maitland  v.  Bank.  40  Md.  540;  »  Maitland  v.  Bank,  40  Md.  540. 

Stoddard  v.  Kimball,  6  Cush.  469;  'Collins  t>.  Gilbert,   94  U.  8.  753. 

Dresser  v.  Railroad  Co.,  93  U.  S.  92,  760:  Stoddard  c.  Kimball,  6  Cush. 

96;  Watson  v.  Cabot  Bank,  5  Sandf.  469;  Small  r.  Smith,  1  Denio.  583. 
423;  Case  *.  Mech.  Bid.  Assn., 4  N. 


ACCOMMODATION  PAPER.  51 

modation  paper  receiving  the  same  before  maturity,  for  a 
valuable  consideration,  and  without  notice,  where  such  use 
of  the  paper  by  the  holder  is  a  misappropriation  thereof,  and 
contrary  to  the  restrictions  imposed  by  the  accommodating 
party  on  its  use,  such  affirmative  acts  or  gross  negligence, 
or  knowledge  actual  or  presumptive,  of  the  misappropria- 
tion, must  be  shown  as  to  make  the  transaction  of  pledge  a 
fraud.1  The  inference  in  such  cases  is,  that  the  pledgee  of 
such  accommodation  bill  or  note  gave  value  for  it,  that  be- 
ing the  object  for  which  such  paper  is  given,  although  the 
act  of  pledge  be  a  misappropriation.  * 

A  bona  fide  holder  of  accommodation  paper,  for  value, 
before  maturity,  without  notice  of  equities,  receiving  the 
same  from  a  pledgee  thereof,  is  entitled  to  recover  the 
whole  amount,  although  as  between  the  maker  and  the 
payee  and  pledgee  there  is  a  complete  defense.3  Where 
accommodation  paper  is  given  for  the  purpose  of  being 
used  as  collateral  security,  for  a  present  loan,  it  is  no 
defense  thereto  that  it  was  received  by  a  pledgee  as  col- 
lateral security  for  an  antecedent  debt,  the  purposes  of  the 
accommodation  party  having  been  obtained,  and  no  fraud 
being  charged  ;*  and  where  the  power  was  to  sell,  and  the 
note  was  pledged  as  collateral  security  for  an  antecedent 
debt,  the  maker  remained  liable  ;*  as  also  where  the  accom- 

1  Jackson  t>.  First  Nat.  Bank,  42  N.  original   note  by  the  pledgee,  and 

J.  L.  177;  Duncan  v.  Gilbert,  29  N.  execution    issued.     Suit    was    then 

J.  L.  52;  Fisher  v.  Fisher,  98  Mass,  brought  on  the  collateral  note,  and 

303.  In  the  last  case,  an  accommoda-  the  pledgee  was  allowed  to  recover 

tion  promissory  note  was  delivered  to  the  extent  of  the  debt  secured, 

by  the  payee  to  a  third  party  to  be  dis-  Stoddard  v.  Kimball.  6  Cash.  469. 
counted  for  his  benefit,  but  the  third          *  Collins  v.  Gilbert,  94  U.  S.  753 ; 

party  pledged  the  same  as  collateral  Seybel  v.  Bank,  54  N.  Y.  291 ;  Perci- 

security  for  his  own  note  not  then  val  v.  Frampton,  2  Cr.  M.  &  R.  183. 
due,    held   by  the  plaintiffs.     The         3  Cook  «.  Norwood,  106  111.  558. 
pledgees  had  no  knowledge  that  the         4  Lee  v.  First  Nat.  Bank,  42  N.  J. 

note  was  an  accommodation  one,  L.  177;  Duncan  v.  Gilbert,  29  Ib.  52. 
nor  of  the  relations  existing  between  5  Matthews  v.  Rutherford,  7  La. 

any  of  the  prior  parties.    Judgment  Ann.  225. 
was    afterwards    obtained    on   the 


52  NEGOTIABLE  COLLATERAL  SECURITIES. 

modation  paper  was  pledged  for  a  much  larger  amount  than 
that  authorized.1 

§39.  SUCH  PLEDGES  NOT  SUSTAINED  FOB  ANTECE- 
DENT DEBT,  WITHOUT  MORE. — Pledges  of  accommodation 
paper,  in  cases  of  misappropriation,  are  not  sustained  in 
states  where  the  more  restricted  rule  as  to  the  title  of  the 
holder  of  ordinary  commercial  paper  as  collateral  security 
for  an  antecedent  debt,  without  more,  prevails.  A  pledgee, 
receiving  accommodation  paper  by  an  act  of  misappropri- 
ation, merely  as  collateral  security,  without  any  further 
consideration,  although  without  notice  and  in  good  faith,  is 
not  in  such  states  a  holder  for  value,  in  the  usual  course  of 
business.  The  rule  was  applied  in  a  case  in  New  York, 
where  restrictions  had  been  placed  upon  the  use  of  accom- 
modation paper,  the  pledgee,  although  receiving  the  collat- 
eral securities  before  maturity,  bona  fide  and  without  no- 
tice, was  not  allowed  to  recover  thereon.'  The  original 
taint  of  invalidity  affects  subsequent  transactions,  as  where 
a  pre-existing  debt  for  which  collateral  notes  had  been 
pledged  having  been  discharged,  the  notes  were,  by  agree- 
ment of  the  parties,  retained  as  collateral  security  for  an 
overdrawn  account.  Under  this  class  of  decisions,  the  sec- 
ond transaction  was  vicious  equally  with  the  first.8  Nor 
will  a  pledgee  become  a  holder  for  value,  where,  upon  a 
tortious  pledge  of  an  accommodation  note  by  an  agent,  to 
whom  it  had  been  intrusted  to  get  discounted,  for  his  own 
antecedent  debt,  the  collateral  note  was  afterwards  renewed, 
without  consideration.4  But  no  recovery  was  allowed  to  the 
maker  of  an  accommodation  note  wrongfully  pledged  by 
one  entrusted  therewith  for  a  specific  purpose  as  collateral 
security  for  his  own  antecedent  debt,  who  had  paid  the 

1  Maitland  v.  Bank,  40  Md.  540.  •  Merchants'   Bank  v.  Corliss,  46 

*  Grocers'  Bank  v.  Penfield,  69  N.  Barb.  19. 

Y.  502;  Freund  v.  Bank,  76  Ib.  352;  *  Royer  v.  Keystone  Nat.  Bank,  83 

Bee  Essex  Co.  Bank  v.  Russell,  29  Ib.  Pa.  St.  248. 
673. 


ACCOMMODATION  PAPEB.  53 

same,  and  then  before  the  statute  of  limitations  had  barred 
any  rights  he  might  have  had,  but  after  the  relations  of  the 
parties  had  been  greatly  complicated  and  changed,  brought 
a  suit  to  recover  the  money  back.  The  lower  court  decided 
in  favor  of  the  accommodation  maker,1  but  was  overruled 
by  the  -court  of  appeals.* 

§40.  PLEDGEE  CHARGEABLE  WITH  NOTICE  OF  FRAUD 
OR  FORGERY,  CAN  NOT  RECOVER. — Where  accommodation 
paper  is  fraudulently  misappropriated,  and  the  pledgee  re- 
ceiving the  same  is  chargeable  with  knowledge,  actual  or 
presumptive,  of  such  misappropriation,  or  where  the  names 
of  parties  to  such  paper  are  shown  to  have  been  forged, 
no  recovery  is  permitted  as  against  the  injured  party.  The 
fraudulent  pledge  of  an  accommodation  note,  purporting  to 
be  indorsed  by  a  partnership,  for  an  antecedent  debt,  where 
the  pledgee  was  chargeable  with  notice  of  the  facts,  will 
not  entitle  the  pledgee  to  recover  as  against  the  partner 
without  whose  consent  the  paper  was  so  used.*  And 
where  accommodation  paper  was  fraudulently  misappro- 
priated by  a  member  of  a  partnership,  being  received 
with  knowledge  of  the  fraud,  and  subsequently  the  maker 
of  the  accommodation  note,  having  full  knowledge  cf  the 
fraud,  gave  a  new  note  in  renewal,  which  he  subsequently 
paid,  under  the  facts,  the  maker  not  being  liable  to  pay 
the  first  note,  his  subsequent  payment  of  the  note  given  in 
renewal  created  no  valid  claim  on  the  partnership  to  reim- 
burse him  the  amount  paid.4  The  accommodation  note  of 
an  individual  partner,  secured  by  a  mortgage  upon  his  wife's 
separate  property,  the  name  of  the  wife  being  forged  upon 
the  note  as  joint  maker,  is  utterly  void  as  against  the  wife 
in  the  hands  even  of  an  innocent  holder.  The  note  and 


1  First  Nat.  Bank  v.  Southwick,  20  329;  but  see  Maitland  v.  Bank,  40 

Hun.  849.  Md.  540. 

*  S.  c.  76  N.  Y.  352.  *  Mix  v,  Muggy,  28  Conn.  186. 
8  Myuahan  v.  Hanford,  42  Mich. 


64  NEGOTIABLE  COLLATERAL  SECURITIES. 

mortgage  are  one  contract,  and  the  former  being  void,  the 
•wife  was  discharged.1 

§  41.  PLEDGE  OP  ACCOMMODATION  PAPER,  AFTER 
MATUTUTY. — Tt  results  from  the  character  and  purposes  of 
accommodation  paper,  that  the  obliged  party,  permitted 
to  retain  such  paper  after  its  maturity,  may  transfer  the 
same,  either  absolutely  by  sale  or  as  collateral  security,  and 
the  accommodation  maker  or  indorser  will  have  no  defense, 
by  reason  of  such  negotiation  after  maturity  as  against  a 
bona  fide  pledgee,  advancing  a  valuable  consideration,  and 
taking  the  same  without  notice  of  equities.*  Where  there 
is  no  limitation  placed  upon  the  time  of  its  use  by  the  ac- 
commodated party,  no  legal  presumption  arises  of  an  inten- 
tion to  limit  such  use  to  the  time  before  its  maturity,  so  long 
as  it  remains  in  the  possession  of  the  party  accommodated.1 
Nor  will  a  presumption  of  fraud  or  mala  fides  arise  where 
such  accommodation  paper  is  negotiated  after  its  maturity 
by  one  holding  it  for  his  benefit  without  restrictions,  from 
the  fact  alone  that  such  paper  was  overdue.4  The  liability 
of  an  accommodation  indorser  was  decided  in  a  New  York 
case  to  be  defeated  where  such  note  was  retained  by  the 
accommodated  party  until  after  its  maturity,  nor  was  an 
indorsee  of  such  note,  although  paying  full  value,  receiving 
the  same  dishonored,  entitled  to  enforce  it  as  against  such 


1  Mersman  v.  Werger,  1  McCrary,  of  the  person  entrusted  with  its  use 

528.  ceases,  if  it  is  not  negotiated  before 

9  Miller  ».  Lamed,   103  111.  562;  its  maturity.    Negotiation  after  ma- 

Silverman  «.  Bullock,    98    Ib.  11;  turity  may  serve  the  very  purpose  of 

Harrington  v.  Dow,   8  Robt.  275 ;  its  making — in  that  way  only  it  may 

Robbins  v.  Richardson,  2  Bosw.  253.  be  the  intended  loan  of  credit  can  be 

*Dunn«.  Weston,71Me.  270;  First  made  effectual.    Connerly  v.  Plan- 
National  Bank  v.  Grant,  71  Ib.  374 ;  ters'  Ins.  Co.,  66  Ala.  432. 
Robbins  v.  Richardson,  2  Bosw.  253 ;          4  Brown  v.  Mott,   7  Johns.  861; 
Harrington   ».    Dow,   8  Rob.  275.  Lincoln  ».  Stevens,  7  Mete.  529;  Con- 
There  can  be  no  inference  or  pre-  nerly  v.  Planters    Ins.   Co.  supra 
sumption  that  such  paper  is  to  be-  Charles  v,  Marsden,  1  Taunt.  224. 
come  valueless,  or  that  the  authority 


ACCOMMODATION   PAPER.  55 

indorser.     The  defense  of  want  of  consideration  attaches  to 
the  note  after  maturity  in  the  hands  of  any  holder.1 

§  42.  THE  AMOUNT  OF  RECOVERY  BY  THE  PLEDGEE. — 
Where  an  accommodation  bill  or  note,  upon  which  no  re- 
striction as  to  the  mode  or  time  of  its  use  has  been  placed  by 
the  accommodating  party,  has  been  transferred  as  collateral 
security,  in  good  faith,  in  the  usual  course  of  business, 
the  pledgee  holding  for  value  is  entitled  to  recover  the  full 
amount  thereof,  although  he  may  have  had  knowledge  that 
it  was  accommodation  paper.1  But  if  he  is  chargeable  with 
knowledge  that  the  paper  was  intended  to  be  pledged  for  a 
specified  debt,  and  accepts  it  as  collateral  security  for  a 
larger  sum,  his  recovery  is  confined  to  the  sum  actually 
intended  to  be  secured.3  The  presumption  is,  both  where 
the  note  is  taken  as  collateral  security  for  a  debt  then 
created  as  well  as  where  it  is  taken  as  collateral  security  for 
an  antecedent  debt,  that  the  holder  paid  full  consideration 
for  the  note.  It  is  upon  the  defendant  to  prove,  in  order  to 
overcome  thb  presumption,  that  the  holder  did  not  give  full 
consideration  for  it.4  The  pledgee  of  such  negotiable  ac- 
commodation paper  holding  the  same  as  collateral  security 

1  Chester  «.  Dorr,  41  "K  Y.  279.  Mechanics'  Bank  v.  Barnett,  27  Lou. 

*  First  Nat.  Bank  v.  Grant,  71  Mo.  Ann.  177,  the  pledgee  was  only 
374  ;  Dunn  ®.  Weston,  Ib.  270;  Rob-  given  the  amount  of  his  advances, 
bins  c.  Richardson,  2  Bosw.  253  ;  »  Maitland  0.  Bank,  40  Md.  540. 
Brown  v.  Mott,  7  Johns.  360;  Sey-  *  Duncan  v.  Gilbert,  29  N.  J.  L. 
bel  t>.  Bank,  54  N.  Y.  291 ;  Hairing-  521 ;  Collins  «.  Gilbert,  94  U.  S.  753, 
ton  v.  Dow,  3  Rob.  275 ;  Common-  751.  "Where  an  accommodation 
wealth  v.  City  of  Pittsburgh,  34  Pa.  note  was  pledged  as  collateral  secur- 
St.  496;  Smith  0.  Knox,  3  Esp.  46;  ity  f or  letters  of  credit,  the  holder 
Lord  t>.  Ocean  Bank,  20  Pa.  St.  384;  was  not  required  to  show  that  his 
Newberry  v.  Rand,  38  N.  H.  166;  actual  advances  had  reached  the 
Maitland  v.  Bank,  40  Md.  540 ;  Stod-  amount  of  the  letters  of  credit,  in 
dard  v.  Kimball,  6  Cush.  469;  Fish-  order  to  enable  him  to  recover  the 
er  v.  Fisher,  88  Mass.  303 ;  Bowman  face  of  the  note  if  the  letters  of 
«.  Wilson,  58  111.  36 ;  Louisiana  St.  credit  were  still  unrevoked  and  his 
Bank  v.  Gaienue,  21  Lou.  Ann.  355;  liability  continued.  Allaire  v.  Harts- 
Gardner  v.  Maxwell,  27  Ib.  561.  In  home,  21  N.  J.  L.  566. 


56  NEGOTIABLE  COLLATERAL  SECURITIES. 

for  an  antecedent  debt  simply,  in  good  faith,  although  a 
holder  for  value,  is,  under  an  equitable  rule,  permitted 
only  to  recover  as  against  the  accommodating  party  the 
amount  of  his  advances  thereon,  where  less  than  the  value 
of  the  collateral  securities.  Unless  accountable  to  some 
third  person  for  any  surplus,  no  reason  exists  why  the 
pledgee  should  recover  any  more  than  the  balance  of  the 
debt  for  which  he  is  a  holder  for  value.1  The  recovery 
was  similarly  restricted,  in  a  case  where  the  note  thus 
assigned  was  tainted  with  usury.* 

1  Cromwell  v.  County  of  Sac,  96  N.   T.  503 ;   Maitland   v.  Citizens' 

U.S.  51,  60;  Allaire  v.  Hartshorne,  Nat.  Bank,  40  Md.  570;    Gnmt  v. 

21  N.  J.  L.  665;  Williams  «.  Smith,  Kidwell,  30  Mo.  455;  Atlas  I3:tuk  v. 

2  Hill,  301 ;  Chicopee  Bank  v.  Cha-  Doyle,  9  R.  I.  76;   Mayo  v.  Moore, 

pin,  8  Met.  40;  Stoddard  0.  Kimball,  28   111.428;   Steere   v.   Benson,    2 

6  Gush.  469 ;  Atkinson  v.  Brooks,  26  Bradw.  560 ;  Jones   t>.    Heffcrt,    2 

Vt.  569;  Tarbell  v.  Sturtevant,  Ib.  Stark.  356. 

513;  Grocers'  Bank  v.  Penfleld,  69  '  Taylor  v.  Daniels,  38  111.  331. 


BONDS  AND  COUPONS.  67 


CHAPTER  V. 

NEGOTIABLE  BONDS  AND  COUPONS  AS  COLLATERAL. 

§43.  The  pledgee  of  negotiable  bonds  and  coupons  a  holder  for  value. 

44.  No  title  acquired  by  pledgee  upon  bonds  totally  void. 

45.  The  rule  as  to  "  registered  "  bonds. 

46.  The  pledgee  of  negotiable  bonds,  when  subject  to  equity. 

47.  The  negotiability  of  severed  coupons. 

48.  The  title  of  the  pledgee  of  negotiable  coupons,  overdue. 

49.  The  title  of  bona  fide  holders,  pledgees  of  "debentures." 

§  43.  THE  PLEDGEE  OP  NEGOTIABLE  BONDS  AND 
COUPONS  A  HOLDEK  FOR  VALUE. — Bonds  issued  by  a  muni- 
cipal or  other  corporation  under  statutory  authority,  and 
made  payable  to  "bearer"  or  "  holder,"  are  valid  commer- 
cial instruments,  and  a  pledgee  receiving  the  same  before 
maturity,  for  a  valuable  consideration,  without  notice  ot 
equities  in  the  usual  course  of  business,  is  vested  with  the 
legal  title  thereto,  free  of  prior  equities  between  antecedent 
parties,  as  in  the  case  of  negotiable  promissory  notes  and 
bills  of  exchange.  The  title  of  such  pledgee,  so  advancing 
a  valuable  consideration,  upon  the  faith  and  credit  of  the 
representations  of  such  negotiable  collateral  securities,  in 
good  faith,  is  good  against  the  world.1  Being  negotiable  in- 

1  White  v.  Railroad  Co.,  21  How.  Co.,  99  U.  S.  362,  370 ;  Copper  v.  New 

575  ;  Mercer  Co.  v.  Hacket,  1  Wall.  Jersey  City,  44  N.  J.  L    634;  Boyd 

83 ;  Gilpecke  v.  City  of  Dubuque,  Ib.  v.  Kennedy,  38  Ib.  146  ;  Arents  v. 

175;  Myer  ».  City  of  Muscatine,  Ib.  Commonwealth,   18  Gratt.  750;   De- 

884;  Murray  ®.  Lardner,  2  Ib.  110;  Voss  v.  Richmond,  Ib.  338;    Beaver 

Thompson  v.  Lee  County,  3  Ib.  327;  Co.  v.  Armstrong,  44  Pa.  St.  63 ;  Mc- 

Super visors  v.  Schenck,  5  Ib.  772;  Elrath  v.  P.  &  S.  R.  Co.,  55  Ib.  189, 

Marion    County    Commissioners   v.  206 ;  Greenwell  v.  Hayden,  78  Ky. 

Clark,  94  U.  S.  278 ;  Brooklyn  v.  Ins  332;  Town  of  Eagle  v.  (John,  84  111. 


58  NEGOTIABLE   COLLATERAL  SECURITIES. 

struments,  where  one  person,  without  notice  of  equities, 
advances  value  thereon,  in  the  usual  course  of  business,  a 
second  person,  who  acquires  the  same  from  him  before  due, 
for  value,  is  vested  with  a  legal  title,  although  with  notice, 
because  he  receives  a  new  and  independent  title 
from  such  previous  holder  for  value  without  notice.1 
Where  the  power  to  issue  negotiable  bonds  by  municipal  or 
other  corporations  is  to  be  exercised  in  a  special  manner,  or 
subject  to  certain  regulations,  conditions  or  qualifications ; 
and  upon  the  face  of  the  bonds  it  is  recited  that  they  are 
issued  in  conformity  with  such  regulations,  conditions  or 
qualifications  ;  and  it  is  the  sole  province  of  the  officers  or 
agents  of  the  municipality  executing  such  bonds,  to  decide 
whether  or  not  there  was  an  antecedent  compliance  with 
such  regulations,  conditions  or  qualifications,  the  equitable 
doctrine  of  estoppel  is  applied.  Such  corporation  is  es- 
topped to  deny  the  truth  of  the  recitals  appearing  on  the 
face  of  its  negotiable  bonds  as  against  a  bona  fide  holder 
before  maturity,  who  has  advanced  value  on  the  faith 
thereof.*  Where  however  parties  have  notice  and  knowledge 
of  the  non-performance  of  essential  conditions  by  the  party 
issuing  the  same,  the  holder  is  not  protected  against  equities.8 
A  municipal  or  other  corporation  which  has  paid  interest 
for  several  years  on  its  negotiable  bonds,  without  objection, 
is  estopped  by  its  affirmative  acts,  amounting  to  a  ratifica- 
tion thereof,  to  dispute  the  validity  of  them,  in  the  hands  of 

293;  Garvin  ».  Whwcll,  83  Ib.  218;  'Montclair  v.  Ramsdcll,  107  U.  S. 

P.  &  S.  R  R.  Co.  v.  Thompson,  103  147;    Marion    County    Comm.    v. 

Ib.  205;  Brainerd  v.  Railroad  Co.,  Clark,  94  U.  S.  278;    Bailey  ».  Bid- 

25  N.  Y.  496;  Dinsmore  t>.  Duncan,  well,  13  M.  &  W.  15. 

57  Ib.  573 ;    Evertson  v.   National  *  Joseph  Township  v.  Rogers,  16 

Bank,  66  Ib.  14;  Claflin  «.   South  Wall.  659;  Town  of  Colona  v.  Eaves, 

Carolina  R.  R.  Co.,  4  Hughes,   12;  92  U.   S.  784;    Marion    County  t>. 

Third  Nat.  Bank  v.  Seneca  Falls,  15  Clark,  94  Ib.  278;  Hackett  v.  Otta- 

Fed.  Rep.  779;  Higgs  v.  Assam  Co.,  wa,  99  Ib.  86;   Ottawa  v.  National 

L.  R.  4  Ex.  387  ;  In  re  Blakesley,  L.  Bank,  105  U.  S.  342. 

R.  3  Ch.  154;  Rumball  v.  Metropoli-  'Ottawa  ».  Carey,  108  U.  S.  110; 

tan  Bank,  L.  R.  2  Q.  B.  D.  194;   In  Dixoii  v.  Field,  111  Ib.  89. 
re  Cork  etc.  Ry.  Co.,  L.  R.  4  Ch.  748. 


BONDS  AND   COUPONS.  59 

bona  fide  holders,  advancing  money  thereon,  without  notice 
of  equities.1  Nor  will  mere  irregularities  in  the  organiza- 
tion of  the  municipal  or  other  body  issuing  the  same,  defeat 
the  title  of  holders  of  bonds  for  value  where  otherwise 
legally  issued.*  Nor  the  failure  by  the  officers  of  a  muni- 
pal  or  other  corporation  to  follow  special  directions  in 
relation  to  particular  bonds  where  a  holder  for  value  is  not 
chargeable  with  notice.8 

§44.  No  TITLE  ACQUIRED  BY  PLEDGEE,  UPON  BONDS 
TOTALLY  VOID. — Iii  cases  of  the  issue  of  negotiable  bonds 
and  coupons,  by  municipal  or  other  corporations,  where 
there  is  a  total  want  of  power  on  the  part  of  such  municipal 
or  other  corporation  to  issue  the  same,  notice  thereof  is 
chargeable  upon  all  persons  dealing  therewith,  and  no 
right,  title,  or  interest,  can  be  acquired  even  by  persons 
advancing  money  thereon,  as  against  such  municipal  or 
other  corporation  upon  any  negotiation  thereof.4  In  the 
absence  of  statutory  authority,  municipal  or  other  corpora- 
tions are  without  power  to  issue  negotiable  bonds  and  cou- 
pons.5 Nor  can  a  municipal  or  other  corporation,  without 
such  authority,  issue  its  bonds  in  aid  of  an  object  clearly 
extraneous  to  its  legitimate  purposes.  Every  person  deal- 
ing in  such  bonds  must  at  his  peril  take  notice  of  the  exist- 
ence and  terms  of  the  law  under  which  is  claimed  the  power 
of  issue,  whether  value  be  paid  or  advanced  or  not,  upon 
such  securities.'  But  where  the  issue  of  bonds  by  agents 

1  County  of  Clay  v.   Society  for          4  East  Oakland  v.  Skinner,  94  U.  S 

Savings,  104  U.  S.  579,  591 ;   Super-  255. 

visor    v.    Schenck,    5    Wall.    772;          6  Merrill  v.  Town  of  Monticello, 

Whiting    v.    Town    of    Potter,    18  14  Fed.  Hep.  628;  Hepper  v.  Cov- 

Blatchf.  105,  165,  180;  Bank  v.  Sen-  iugton,  8  Fed.  Rep., 777. 
cca  Falls,  (C.  C.  U.  S.  N.  Y.  1883)         «  South  Ottawa  v.  Perkins,  94  U.  S. 

15  Fed.  Rep.  783;    Society  v.   New  260;  Pendleton  County  v.  Amy,  13 

London.  29  Conn.  174.  Wall  297;  Kennicott  v.  Supervisors, 

8  Savings  Bank  v.  Roscoe,  75  Mo.  16  Ib.  452;  St.  Joseph  v.  Rogers,  Ib. 

408.  644 ;  Colona  e.  Eaves,  92  U.  S.  784. 

1  Devoss  V.  Richmond,  18  Gratt. 
838. 


60  NEGOTIABLE   COLLATERAL  SECURITIES. 

appointed  by  a  municipality  is,  in  the  beginning,  irregular- 
ly or  insufficiently  authorized,  a  municipal  or  other  corpora- 
tion, having  power  to  appoint  such  agents  to  issue  for  them 
such  obligations,  may,  like  individuals,  adopt  and  ratify, 
and  thus  make  valid  the  acts  of  their  agents,  and  estop 
themselves,  as  against  pledgees  of  such  bonds,  for  value,  to 
set  up  any  defenses.1 

§45.  THE  RULE  AS  TO  REGISTERED  BONDS. — A  different 
rule  is  applied  to  "registered  "bonds  for  the  payment  of  money 
by  municipal  or  other  corporations,  which  are  but  quasi  ne- 
gotiable instruments,  being  made  payable  to  a  particular 
person,  or  "assigns,"  and  not  to  "bearer"  or  "holder.'* 
Such  bonds  are  like  shares  of  stock,  and  usually  books  of 
registration  and  transfer  are  kept,  and  the  transfer  of  such 
bonds  is  generally  covered  by  statutory  charter  provisions, 
and  are  also  by  the  terms  thereof,  transferable  only  upon  such 
books.  A  full  legal  title  thereto,  as  against  third  parties, 
can  only  be  acquired  by  a  transfer  thereon.  Until  such 
transfer  is  made,  the  assignee  receives  an  equitable  title 
only,  and  the  bonds  are  subject  to  all  the  defenses  to  which 
they  would  have  been  subject  in  the  hands  of  prior  holders.* 
Other  bonds  are  sometimes  issued  by  corporations,  payable 
to  bearer,  which  may,  at  the  option  of  the  holder,  be  regis- 
tered on  the  books  of  the  company,  a  certificate  thereof  be- 
ing indorsed  on  the  bond  by  the  transfer  agent  of  the  com- 
pany. After  such  registration,  no  transfer,  except  upon  the 
books  of  the  company,  conveys  the  legal  title  thereto  as 
against  third  parties ;  but  silfch  transfer  may,  usually  at  the 

1  Knox  Co.  «.  Aepinwall,  21  How.  Mayor,  17  N.  Y.  449 ;  Hoyt  v.  Thomp- 

644;  Zabriskie  t>.   Railroad   Co.  23  son,  19  Ib.  208;   Calhouu  v.  Delhi 

How.  381 ;  Supervisors  v.  Schenck,  5  Ry  Co.,  28  Hun.  379 ;  Society  for 

Wall.  772,  781 ;    Pendleton  Co.  v.  Savings  v.  New  London,   29  Conn. 

Amy,  13  Ib.  296;  County  of  Clay*.  174;  N.  Y.  &  N.  H.  R.  R.  Co.  v 

Society  of  Savings,  104  U.  8.  579;  Schuyler,  34  N.  Y.  80,  49. 

Johnson  v.  Stark  Co.  24  111.  90;  Stuart  *  Cronin  t>.  Patrick  Co.  4  Hughes, 

t>.  School  Dist.  30  Mich.  69;  Tash  v.  524;  DeVoss  C.Richmond,  18  Gratt. 

Adams,  10  Cush.  252;    Peterson  v.  838. 


BONDS  AND  COUPONS.  61 

election  of  the  holder,  be  made  to  bearer,  restoring  negotia- 
bility to  the  bond.  This  power  of  registration,  and  the  con- 
ditions thereof,  generally  appear  on  the  face  of  the  bond, 
and  covers  any  number  of  successive  transfers  and  regis- 
trations. 

§46.  THE  PLEDGEE  OF  NEGOTIABLE  BONDS,  WHEN 
SUBJECT  TO  EQUITIES. — Negotiable  bonds  and  coupons, 
when  received  after  due,  as  collateral  security  upon  an  ad- 
vance, or  as  collateral  security  for  an  antecedent  debt,  are 
subject  in  the  hands  of  the  pledgee  to  the  like  equities  and 
defenses  as  other  instruments  of  commerce,  bills  of  exchange 
and  promissory  notes.  The  pledgee,  receiving  such  collat- 
erals after  maturity,  obtains  no  better  title  or  greater  inter- 
est therein  than  the  pledger,  and  is  subject  to  the  defenses 
available  against  the  holders,  although  for  value,  of  dishon- 
ored paper.1  The  like  rule  is  applied  to  bonds  and  treasury 
notes  of  the  United  States,  payable  to  bearer  at  a  definite 
time  when  transferred  after  maturity.  The  title  of  the 
holder  is  subject  to  the  equities  of  antecedent  parties  to  the 
same  extent  as  in  the  case  of  other  commercial  paper,  in- 
dorsed after  maturity.* 

The  presence  of  unpaid  coupons  upon  a  bond  is  not  of 
itself  sufficient  evidence  of  dishonor  of  the  bonds  to  which 
they  are  attached,  to  destroy  negotiability,  and  does  not 
render  a  pledgee  taking  the  same  as  collateral  security,  in 
good  faith,  and  without  notice,  subject  to  equities  between 
the  original  parties.8  The  recovery  of  the  pledgee,  whether 
the  loan  be  made  at  the  time,  or  the  bonds  be  received  as 
collateral  security  for  a  precedent  debt,  may  be  limited 

'Texas  v.  "White,    7  Wall.  700;  'Cromwell  v.  County  of  Sac,  96  U, 

Texas  «.  Hardenbergh,   10  Ib.  90;  S.  51,  58;   Nat.  Bank  of  N.  A.  ®. 

Parsons  v.  Jackson,   99  U.  S,  440;  Kirby,  108  Mass.  497;  Boss  v.  Hew- 

Stern  v.  Germania  Nat.  Bank,  34  La.  itt,    15  Wis.    260;    Indiana  &  111. 

Ann.  1119;  Greenwell  «.  Hayden,  78  Cent.  R.  Co.  v.  Sprague,  103  U.  S. 

Ky.  332.  756,  distinguishing  Parsons  v.  Jack- 

11  Vermilye  v.  Adams  Exp.  Co.,  21  son,  supra. 
Wall.  139. 


62  NEGOTIABLE  COLLATERAL  SECURITIES. 

to  the  amount  actually  advanced  or  secured,  in  cases 
where  the  pledgee,  although  holding  an  absolute  title 
to  the  negotiable  collaterals,  is  or  can  not  be  responsi- 
ble over  either  to  the  pledgor  or  to  other  parties 
should  he  recover  the  entire  face  value  of  the  collat- 
eral.1 The  negotiability  of  such  bonds,  when  payable  to 
bearer,  carries  with  it  a  guarantee  free  of  equities  existing 
between  the  original  parties.*  A  bond  made  payable  to  a 
certain  person,  and  after  maturity,  upon  consideration,  fur- 
ther time  was  given,  the  corporation  indorsing  on  the  bond 
under  its  seal  that  it  would  pay  the  same  to  "  bearer."  The 
indorsement  rendered  the  bond  negotiable.1 

§47.  THE  NEGOTIABILITY  OF  SEVERED  COUPONS. — The 
coupons  or  warrants  for  interest  generally  attached  to  corpo- 
ration or  municipal  bonds,  are  usually  made  payable  to 
"  bearer,"  and  are  negotiable  equally  with  the  bond.  When 
severed,  they  cease  to  be  mere  incidents  of  the  bonds,  and 
become  independent  claims,  assimilating  to  negotiable  prom- 
issory notes.  Their  validity,  negotiability,  or  ability  to 
support  separate  actions  on  the  promises  contained  therein, 
is  not  lost  or  destroyed,  although  the  bonds  with  which 
they  were  issued  be,  for  any  cause,  canceled  or  paid  before 
maturity.4  Suit  may  be  maintained  upon  them  in  advance 

1  Cromwell  t>.  County  of  Sac.,  4  Town  of  Thompson  v.  Perrine, 

Bupra,  per  Field,  J;  Stoddard  v.  106  U.S.259;  Walnut*. Wade,  103 Ib. 

Kimball,  6  Gush.  468;  Allaire  v.  696;  Brooklyn  v.  Insurance  Co.,  99 

Hartshorne,  1  Zab.  665;  Chicopee.  Ib.  362;  County  of  Ray  v.  Vansycle, 

Bank  v.  Chapin,  8  Met,  40;  Williams  96  Ib.  675;  Cromwell  v.  County  of 

«,  Smith,  2  Hill  301.  Sac,  94  Ib.  351,  362;  Clark  v.  Iowa 

*  In  re  Agra  &  Masterman's  Bank,  City,  20  Wall.  583;  Aurora  City  v. 

L.  R  2  Ch.  App.  397;  In  re  Blake-  West,  7  Ib.  82;  Thompson  «.  Lee 

ley  Ordnance  Company,  L.  R.  3  Ch.  County,  8  Ib.  327;  Gelpccher,  Du- 

App.  154  buque,  1  Ib.  175;  Knox  County  «. 

•Manufacturing  Co.  v,  Bradley,  Aspinwall,  21  How.  533;  White  v. 

105  U.  S.  175;  Langston  t>.  S.  C.  Ry  Railroad  Co.,  Ib.  575;  Moran  v.  Mia- 

Co.,  2  S.  C.  248;  Bank  «.  Railroad  mie  County,  2  Black  722;  Third  Na- 

Co.,  6  Ib.  156;  Bonded  Debt  Cases,  tional  Bank  v.  Seneca  Falls,  C.  C.  U. 

12  Ib.  200,  250.  S.  N.  Y.  1883,  15  Fed.  Rep.  783; 


BONDS  AND   COUPONS.  63 

of  the  maturity  of  the  principal  debt,  without  any  produc- 
tion of  the  bond,  and  interest  collected  upon  them  from  the 
time  of  their  maturity.1  The  holder  is  not  required  to  pre- 
sent them  at  maturity  at  any  certain  place  which  may  be 
designated  for  payment  before  suing  thereon,  but  it  will  be 
a  matter  of  defense  for  the  company  if  funds  were  in  readi- 
ness at  such  time  and  place,9  and  unless  the  latter  conditions 
are  proved,  interest  will  be  required  to  be  paid.8  The  rule  is 
otherwise,  where  such  interest  coupons  contain  no  negotiable 
words,  nor  language  from  which  negotiability  can  be  inferred, 
or  any  intention  on  the  part  of  the  corporation  to  create  an 
obligation  independent  of  the  bonds  to  which  they  were 
severally  attached  when  issued,  nor  will  proof  of  custom  be 
allowed  to  impart  negotiability  to  such  coupons,  so  issued.4 

§48.  THE  TITLE  OP  THE  PLEDGEE  OF  NEGOTIABLE 
COUPONS,  OVER  DUE. — The  right  of  action  upon  coupons 
payable  to  bearer,  and  issued  with  negotiable  bonds,  whether 
they  remain  attached  to  the  bond  or  have  been  severed 
therefrom,  begins  from  maturity.6  Such  coupons,  payable 
to  bearer,  are,  like  other  negotiable  instruments,  entitled  to 
days  of  grace,  and  a  bona  fide  pledgee,  receiving  the  same 

Stern  v.  Germania  Nat.  Bank,  34  La.  Ib.  282;  City  V,  Lawson,  9  Ib.  477; 

Ann.  1119;  Gyger  v.  New  Orleans  Gelpecke  v.  City  of  Dubuque,  1  Ib. 

32  La.  Ann.  1255;  Johnson  v.  Stark  175;    Commissioners    Knox    Co.  v. 

County,  24  111.  75 ;  Town  of  Eagle  v.  Aspinwall,  21  How.  539. 

Kobn,  84  Ib,  292;  Pettee  v.  Pratt,  3  »  Walnut  v.  "Wade,  supra ;  Wallace 

Gray  502;  Haven  v.   Railroad  Co.,  v.  McConnell,  13  Pet.  136;  Irwiii «. 

109  Mass.  88;  McKim  v.  King,  58  Withers,  1   Stew.  (Ala.)  234;  Mont- 

Md.  502;    Beaver  County  v.  Arm-  gomery  v.  Elliott,  6  Ala.  701.    Cou- 

Btrong,  44  Pa.  St.  63;  National  Ex-  pons  payable  to  bearer  at  a  special 

change  Bank  v.  Hartford  R.  R.  Co.,  time  and  place  have  all  the  attributes 

8R,  I.  375;  Miller  v.  Rutland  R.  R.  of  negotiable  paper.  First  Nat.  Bank 

Co.,  40  Vt.  499;  First  Nat.  Bank  v.  v.  Tabor,  52  Vt.  7. 

Tabor,  52  Ib  7;  Evertson  v.  National  *  Walnut  v.  Wade,  and  Wallace  v. 

Bank,  66  N.  Y.  14.  McConnell.  supra. 

'Amy  v.  Dubuque,  98  U.  S.  473;  4  Myers  v.  Railroad  Co.,  43  Me. 

Town  of  Genoa  v.  Woodruff,  92  Ib.  232;  Jackson  v.  Railroad  Co.,  48  Ib. 

502;  Clarke.  Iowa  City,  20  Wall.  147. 

503:  City  of  Lexington  v.  Butler,  14  •  Amy  v.  Dubuque,  98  U.  S.  473. 


64  NEGOTIABLE  COLLATERAL  SECURITIES. 

before  the  expiration  of  the  days  of  grace,  for  a  valuable 
consideration,  without  notice  of  equities,  is  not  subject  to 
defenses  attending  the  transfer  of  past  due  commercial 
paper.1  Where  the  bonds  to  which  the  coupons  are  attached 
when  issued  have  not  matured,  the  latter,  although  overdue 
and  detached  from  the  bond,  do  not  lose  their  quality  of 
negotiability  by  the  law  merchant.  Any  one  advancing 
money  bona  fide  thereon  before  the  maturity  of  the  bond, 
is  entitled  to  sue  on  them  as  in  the  case  of  the  transfer  of 
negotiable  paper  payable  to  "bearer."*  The  holders  of 
such  coupons  are  entitled  to  all  the  privileges  and  subjected 
to  all  the  liabilities  attendant  upon  ordinary  commercial 
paper  by  the  law  merchant.  Where  coupons,  payable  to 
bearer,  are  fraudulently  transferred  after  maturity,  the 
holder  receives  no  better  title  than  his  transferror,  and  the 
latter  having  obtained  them  by  fraud  or  theft,  not  being  the 
owner,  nor  authorized  to  sell  or  pledge,  no  title  passes  by 
the  transfer  as  against  the  real  owner.8  Nor  can  the  doc- 
trine of  estoppel  be  invoked  to  protect  the  holder  as  against 
the  owner's  claims.4 

The  bona  fide  holder  of  coupons  payable  to  bearer,  trans- 
ferred for  a  valuable  consideration,  is  not  chargeable  with 
notice  of  the  conditions  upon  which  they  were  issued,  nor  of 
the  resolutions  on  the  record  books  of  the  company  issuing 
the  same.5  Nor  is  it  any  defense  against  such  detached 
coupons  in  the  hands  of  a  bona  fide  holder  advancing  value 
without  notice  that  the  railroad  company  did  not  construct 
the  line  it  agreed  to  as  the  consideration  for  the  bonds  and 
coupons,6  nor  that  informalities  were  committed  in  the  execu- 

1  Evertson  v.  Nat.  Bank,  66  N.  Y.  Jackson.  99  U.  8.  440;  Henderson  v. 

14.  Case,   31    La.   Ann.   215. 

*  Town  of  Thompson  v.  Pcrrine,  *  Toby  «.  Smith.    6    Wall.    493; 
106  U.  8.  259.  Stern  t.  Germania  Nat.  Bank,  supra; 

•  McKim  v.  King,  58  Md.  502;  Stern  Bird  t>.  Cockrem,  28  La.  Ann.  70. 

«.  Germania  Nat.  Bank,  34  La.  Ann.  •  Johnson  v.  Stark  County,  24  Ib. 

1119;  Texas  «.  White,  7  Wall.  700;  75;  Town  of  Eagle  «.  Kohn,  84  Ib. 

Vermilye  t>.  Adams,  21  Ib.  143 ;  Texas  892. 

t>.  Hardenburg,  10  Ib.  90;  Parsons  v.  «  Brooklyn  v.  Ins.  Co.,  99  U.  8. 362. 


BONDS   AND   COUPONS.  65 

tion  or  delivery  thereof.1  Nor  will  questions  of  form  merely, 
or  irregularity,  or  fraud,  or  misconduct  on  the  part  of  agents, 
constitute  a  defense  as  against  a  holder  for  value.*  But 
where  upon  their  face  the  coupons  refer  to  the  bonds  to 
which  they  were  attached,  and  purport  to  be  for  the  semi- 
annual interest  accruing  thereon,  the  holder  is  chargeable 
with  notice  of  the  contents  of  the  bond.* 

§49.  THE  TITLE  ACQUIRED  BY  BONA  FIDE  HOLDERS, 
PLEDGEES,  TO  "  DEBENTURES."  —  English  "  debentures  " 
have  many  of  the  features  of  American  bonds.  They  are 
instruments  showing  that  the  corporation  issuing  them  owes 
money,  and  is  bound  to  pay  ;  and  being  negotiable  in  char- 
acter, a  bona  fide  pledgee  advancing  funds  upon  the  credit 
of  such  representations,  without  notice,  is  not  subject  to  any 
equities  or  defenses  existing  between  the  company  and  the 
original  holder.4  Vice-Chancellor  Malins,  in  re  Imperial 
Land  Company,1  said:  "Every  principle  of  public  policy 
calls  upon  me  to  repudiate  the  notion  that  such  documents 
are  to  be  treated  like  bonds  or  choses  in  action  in  which 
the  equities  between  the  parties  can  be  entered  into." 
Where,  in  accordance  with  a  previous  contract,  debentures 
were  issued  professing  to  be  payable  to  bearer  and  negotia- 
ble as  money,  the  bona  fide  holders  thereof  were  not  sub- 
ject to  equities  existing  between  the  company  issuing  the 
debentures  and  the  parties  with  whom  the  contract  of  loan 
was  made,'  nor  even  where  the  debentures  were  acquired 
after  an  order  had  been  entered  for  the  winding  up  of  the 
company  issuing  the  same,  when  taken  without  notice.' 


1  Wilson v.  Salamanca,  99 U.S. 499.  3  Ch.  758;  Higgs v.  Assam  Tea  Co. 

*  East  Lincoln  v.  Davenport,  94  U.  L.  R.  4  Ex.  387. 

S.  801 ;  Third  National  Bank  v.  Sen-  *  In  re  Imperial  Land  Company, 

eca  Fall,  15  Fed.  Rep.  783.  supra,  p.  490. 

»  McClure  «.  Oxford,  94  U.  S.  429;  •  In  re  Blakeley  Ord.  Company,  L. 

George  v.  Oxford,  16  Kan.  72.  R.  2  Ch.  154. 

4  In  re  Imperial  Land  Co.,L.  R.  11  7  In  re  Imperial  Land  Company, 

Eq.  478;  Ex  parte  City  Bank,  L.  R.  supra. 
5 


66  NEGOTIABLE  COLLATERAL  SECURITIES. 

The  advantages  of  negotiability  do  not  follow  debentures 
where  made  payable  to  a  certain  person  named,  "  or  to  his 
executors,  administrators,  or  transferees,  or  to  the  holder 
for  the  time  being,"  the  word  "  transferees"  meaning  "  as- 
signs," and  assignments  being  required  to  be  by  deed,  and 
the  other  words  "  holder  for  the  time  being"  being  inserted 
to  avoid  the  expense  of  making  transfers  by  deed,  and  not 
for  the  purpose  of  placing  such  holder  in  a  better  position 
as  to  equities  than  an  assignee  by  deed.1 

1  In  re  Natal  Inv.  Co.,  L.  R.  8  Ch.  conditions  were  held  non-negotiable, 

855;    but  a  different  view  of   the  and  the  holder  of  one,  in  good  faith, 

meaning  of  "holders  for  the  time  which  proved  to  have  been  stolen, 

being  "  was  held  in  Alsatt  v.  Farqu-  was  not  allowed  to  recover  thereon, 

harson,  10  W.  R.  458.    And  deben-  Crouch  v.  Credit  Foncier,  L.  11.  8  Q. 

tures  containing  a  contract  in  their  B.  874. 


PLEDGE  BY  PARTNERS.  67 


CHAPTER  VI. 

PLEDGE  OF  COLLATERAL  SECURITIES  BY  PARTNERS. 

§50.    The  partner's  right  to  borrow  money,  and  give  and  receive  collateral 
security. 

51.  Misappropriation  of  proceeds  of  loan  by  partner. 

52.  The  pledgee,  when  a  creditor  of  the  firm. 

53.  The  use  of  trust  funds  and  securities  by  partners. 

54.  Pledge  by  partner  for  his  own  debt,  or  debt  of  third  party — Its  sub- 

sequent ratification. 

55.  The  rule  as  to  guaranties  and  accommodation  paper. 

56.  The  rights  of  the  bona  fide  indorsee,  under  such  pledge. 

57.  Notice  of  misappropriation  to  charge  the  pledgee. 

58.  The  recovery  of  the  bona  fide  indorsee  for  value. 

59.  Effect  of  taking  security  from  individual  partner. 

60.  Release  of  collateral  security  of  partner,  by  payment. 

§  50.  THE  PARTNER'S  RIGHT  TO  BORROW  MONEY  AND 
GIVE  AND  RECEIVE  COLLATERAL  SECURITY. — Members  of 
an  ordinary  commercial  partnership  have  a  general  authority 
to  borrow  money  upon  the  credit  of  the  firm,  in  the  usual 
course  of  business,  and  for  partnership  purposes.  Such 
authority  includes  the  drawing,  acceptance  and  indorsement 
of  bills  of  exchange,  and  the  making  and  indorsement  of 
promissory  notes,  in  the  name  of  the  firm,  upon  the  sale  or 
pledge  of  which  money  may  be  obtained  or  the  payment  of 
a  partnership  liability  be  secured.1  The  exercise  of  this 

1  Gregg  v.  Fisher,  3  Bradw.  261 ;  47  N.  H.  419;  Saltmarsh  v.  Bower,  22 

Blinn  v.  Evans,  24  111.  317;  Uley  v.  Ala.  221;    Wilson  v.   Richards,   27 

Ginrich,  57  Ib.  531;  Davis  v.  Rich-  Minn.  337;  Porter  v.  White,  39  Md. 

ardson,    45    Miss.    499;    McKee  v.  613;  Grier  v.  Hood,  25  Pa.  St.  430; 

Hamilton,  33  Ohio  St.  7;   Leffier  ».  Ross  v.  Howell,  84  Ib.129;  McNagh- 

Rice,  44  Ind.  103;  Baily  v.  Brown-  ten's  App.  101  Ib  204  (15  Rep.  474); 

field,  20  Pa.  St.  41 ;  Dow  v.  Moore,  Moorehead    v.   Gilmore,   77  Pa.  St. 


68  NEGOTIABLE  COLLATERAL  SECURITIES. 

authority  may  be,  however,  controlled  by  the  articles  of 
partnership,  or  by  agreements  between  the  partners.  Such 
contracts  are  sustained  as  between  the  parties  ihereto  and 
parties  chargeable  with  notice  thereof;  but  as  against  third 
parties  who  hnve  ndvanced  value,  in  good  faith,  upon  such 
securities,  in  the  usual  course  of  business,  without  notice, 
they  form  no  defense.  The  general  authority  of  partners 
in  commercial  undertakings  to  bind  the  firm  in  regard  to  the 

o  o 

sale  or  pledge  of  its  paper  can  not  be  secretly  destroyed  or 
restricted  to  the  injury  of  an  innocent  indorsee  thereof  for 
value.1  The  authority  is  given  to  partners  in  commercial 
or  trading  partnerships,  and  does  not  extend  to  farmers, 
doctors,  attorneys,  or  others  of  the  non-trading  class.* 

The  authority  of  members  of  a  commercial  or  trading 
partnership  extends  also  to  the  transfer  or  assignment  of 
the  property  and  credit  of  the  firm  as  collateral  security  for 
the  payment  of  moneys  advanced  to  the  firm,  and  its  debts 
and  liabilities.  The  power,  being  a  general  one  in  commer- 
cial and  trading  partnerships,  is  supported  when  exer- 
cised in  the  usual  course  of  business,  although  without  the 

118;    Smith  v.   Collins,   115  Mass.  283;  Wilson  0.  Richards,  27  Minn. 

388;  Kimbro  v.  Bulbitt,   23  How.  337;    Sylverstein   v.    Atkinson,    45 

266;  Leroy  v.  Johnson,  2  Pet.  186;  Miss.  81;  Nat.  Union  Bank*.  Lon- 

Michigan  Bank  v.  Eldredge,  9  Wall.  don,  66  Barb.  189;  Boswellfl  Green, 

544;  Alliance  Bank  v.  Kearsley,  L.  25  N.  J.    L.    390;  Ex  parte  Holds- 

R.  6  C.  P.  433,  437;  Lane  v.  Will-  worth,  1  M.  D.  &  D.  475;  Glcadon 

iams,  2  Vern.  277,  292;  Rothwell  v.  v.  Tinker,    Holt    N.    P.    Cas.  586; 

Humphries,   1  Esp.  406;    Lloyd  v.  Howken  D.   Bourne,   8  M.    &   W. 

Freshficld,  2  Carr.  &  P.  325;  s.  c.  8  703. 

Ves.  540;   Howkin  v.  Bourne,  8  M.          *  McCrary  «.   Slaughter,  58  Ala. 

&W.  710;  Gordon  v.  Ellis,  7  Man.  &  230;  Hunt  v.  Chapin,  6  Lans.  139; 

Gr.  607;  Brown  v.  Kidger,  3  H.  &  Gray   v.    Ward,    18  111.  82;    Ulcry 

N.  853;  Lewis  v.  Reilly,  1  Q.  B.  349.  v.  Ginrich,  57  Ib.  531 ;  Mix  v.  Muggy, 

1  Kimbro  v.  Bullit,  22  How.  266;  28  Conn.  186;  Crosthwait  v.   Ross,  1 

Michigan  Bank  v.  Eldredge,  9  Wall.  Humph.  23;  Breckenridge  v.  Shrievc, 

544;  Bush  ».  Crawford,  7  N.  B.  R.  4  Dana,  875;  Grecnslade  v.  Dower, 

299;  U.  S.  Bank  v.  Binney,  5  Mason  7  B.  &  C.  635;  Dickerson  v  Valpcy, 

176,  B.  c.  5  Pet.  529;  Gregg  v.  Fisher,  10  Ib.  138;  Foster  t.  Mackreth,  L.  R. 

8  Bradw.  561;  Davis  v.  Richardson,  2  Ex.  163,  166. 
45  Miss.  499;  Laler  «.  Jordan,  44  Ib. 


PLEDGE  BY   PARTNERS.  69 

knowledge  or  consent  of  the  other  partners.1  The  assign- 
ment of  the  property  of  the  partnership,  or  the  indorsement 
of  its  commercial  paper,  as  collateral  security  for  the  pay- 
ment of  an  antecedent  debt,  is  within  this  authority.*  Even 
after  dissolution,  a  deposit  of  collateral  securities  or  of  the 
property  of  the  firm,  may  be  made  to  complete  the  contract 
obligations  of  the  firm  by  the  partner,  to  whom  has  been 
entrusted  the  settlement  of  its  affairs.* 

One  of  two  or  more  partners  may,  in  the  conduct  of 
partnership  affairs,  receive  collateral  securities  for  moneys 
loaned  or  debts  due  to  the  firm.  Where  the  business  carried 
on  is  that  of  banking,  the  acceptance  of  collateral 
securities  upon  a  loan  of  money  by  one  of  the  partners  is 
such  a  transaction  as  would  be  a  part  of  the  ordinary  bank- 
ing business  ;  and  in  cases  of  doubt  the  other  partner  may, 
by  his  acts  or  by  his  silence,  waive  his  right  to  object  to  any 
results  following  the  acceptance  of  such  collateral  securities 
with  title.  Where  one  of  two  partners  in  a  banking  firm 
received  collateral  security  for  an  advance  by  his  firm  and 
taking  the  title  thereto  in  the  name  of  the  firm  the  better 
to  secure  repayment  of  the  money  loaned,  the  other  partner 
making  no  objection  upon  learning  of  the  transaction,  was 
equally  bound  by  the  liabilities  which  eventually  followed 
the  vesting  of  the  title  of  the  securities  in  the  pledgees.4 

1  Harrison  v.  Sterry,3  Cranch,  289;  f.  Davis,  5  R.  I.  448;  Gregg  v.  Fisher, 

Hodges  v.  Harris,  6  Pick.  360;  Tap.  3  Bradw.  261;  Ex  parte  Bonbonus,  8 

ley  v.  Butterfield,lMet.  515;  Russell  Ves.  540;  Brownrigg  v.  Rae,  5  Ex. 

«.  Leland,  12  Allen,  349;   Denning  489;  Gordon  v.  Ellis,  7  Mann.  &  Gr. 

«.    Colt,    3    Sandf.  290;    Egberts    v.  607;  Burchartfl. Dresser,  10  Hare, 453; 

Woods,   3  Paige,  517;    Mabbett  v.  a.  c.  4  De  G.  M.  &  G.  542. 

White,  12  N.  Y.  442;  McClelland  v.  2  Harrison  «.    Steny,    3  Cranch, 

Remsen,  14  Abb.  Pr.  335;  s.  c.  36  289;  Smith  v.  Dennison,  101  111.  531; 

Barb.  622;  Everett  v.  Strong,  5  Hill,  McClelland  v.  Ramsen,  36  Barb.  622; 

163;   s,  c.  7  Hill,  585;  Nat.  Union  Dana  v.  Lull,  27  Vt.  394. 

Bank  v.  London,  66  Barb.  189;  Dana  *  Burchart    v.  Dresser,   10  Hare, 

».  Lull,  17  Vt.  390;  Boswell  v.  Green,  453;  s.  c.  4  De  G.  M.  &  G.  542. 

25  K   J.  L.  390;  Cullom  v.  Blood-  *  Weikersheim's  case,  L  R.  8  Ch. 

good,   15  Ala.   34;    McCollough  v.  831. 
Somerville,  8  Leigh,  415;  Ormsbee 


70  NEGOTIABLE  COLLATERAL  SECURITIES. 

§  51.  MISAPPROPRIATION  OF  PROCEEDS  OF  LOAN  BY 
PARTNER. — Where  one  of  two  or  more  partners  borrows 
money,  in  the  regular  course  of  business  of  the  firm,  and 
upon  its  credit  by  the  negotiation  of  commercial  paper, 
made,  indorsed  or  accepted  in  its  name,  and  the  holder  ad- 
vancing value  thereon,  takes  the  same  bona  fide,  for  value, 
before  maturity,  the  liability  of  the  partnership  or  of  the 
other  partners  to  such  holder  is  not  affected  by  the  fact  that 
the  money  so  obtained  was  in  fact  misappropriated  by  the 
borrowing  partner.1  The  presumption  is,  that  negotiable 
paper  made  by  one  partner,  in  the  name  of  the  firm,  is 
made  in  the  course  of  partnership  dealings,  and  the  burden 
is  upon  the  partnership  alleging  the  contrary,  to  show  that 
it  is  not,  and  that  it  was  received  by  the  holder  advancing 
money  thereon,  under  such  circumstances  as  to  charge  him 
with  notice." 

§  52.  THE  PLEDGEE,  WHEN  A  CREDITOR  OF  THE  FIRM. — 
The  appropriation  of  the  avails  of  a  loan  to  partnership 
purposes,  where  such  loan  is  made  to  a  partner  upon  his  in- 
dividual credit,  who  gives  his  own  note  or  other  security 
for  the  payment  thereof,  is  not  of  itself  sufficient  to  create 
the  relation  of  creditor  and  debtor  between  the  lender  and 
the  partnership,  nor  to  make  the  partnership  liable  upon 
the  loan.8  Even  where  the  other  partners  are  informed  of 

1  Winship  v.  Bank,  5  Peters,  529;  Gregg  «.  Fisher,  3  Bradw.  261;  Syl- 
Blodgett  v.  Weed,  119  Mass.  215;  verstein  t>.  Atkinson,  45  Miss.  81. 
Hay  ward  v,  French,  12  Gray,  453 ;  »  Gregg  v.  Fisher,  3  Bradw.  261; 
Church  v.  Sparrow,  5  Wend.  223;  Barrett®.  Swan,  17  Me.  180;  Hamil- 
Whittakert).  Brown,  16  Ib.  595;  On-  ton  v.  Summers,  12  B.  Monr.  11; 
ondago  Banks.  De  Puy,  17  Ib.  47;  Doty  v.  Bates,  11  Johns.  544;  Whit- 
Alexander  t>.  State,  56  Geo.  478;  Em-  taker  v.  Brown,  16  Wend.  505;  Man- 
erson  «.  Harmon,  14  Me.  271;  Waldo  ning  c.  Hays,  6  Md.  5;  Miller  v. 
Bank  v.  Lambert,  16  Mo.  416;  Miff-  Maurice,  6  Hill,  114;  Bank  v.  Binney, 
lin  v.  Swift,  17  8.  &  R.  165;  Bailey  5  Mason,  176. 
«>.  Brownfield,  20  Pa.  St.  41;  Halde-  »Le  Roy  «.  Johnson,  2  Pet.  198; 
man  «.  Bank  of  Middleton,  28  Id.  StockwelU.  Dillingham,  50  Me.  442; 
440;  Wagner  «.  Freschel,  56  N.  H.  Jaques  «.  Marquand,  6  Cow.  497; 
495;  Smith  t>.  Harvie,  31  111.  62;  Whittaker  v.  Brown,  16  Wend.  505; 


PLEDGE  BY  PARTNERS.  71 

the  persons  from  whom  such  funds  were  obtained,  and  of 
their  use  in  the  business  of  the  firm  ;'  nor  where  bills  are 
drawn  up  by  a  partner  in  his  own  name,  and  discount  ob- 
tained by  an  agent,  the  proceeds  going  to  the  firm.*  And 
where  money  has  been  loaned  to  an  individual  partner, 
although  the  intention  be  to  provide  for  his  share  of  the 
partnership  capital,  and  the  money  is  so  applied,  no  liability 
is  created  on  the  part  of  the  firm,  the  loan  not  having 
been  made  to  the  firm,  nor  upon  its  credit.8  The  decisive 
question  as  to  the  firm  liability  is,  whether  it,  by  one  of  its 
partners  or  otherwise,  entered  into  the  contract  of  loan  so  as 
to  be  chargeable  thereunder,  and  not  whether  the  firm  ob- 
tained the  benefit  of  the  loan  made  by  the  partner.4 

Where  such  money,  however,  has  been  obtained  generally, 
by  the  individual  partner,  the  fact  that  the  funds  thus  ob- 
tained have  been  applied  to  partnership  purposes,  is  prima 
facie  evidence  to  charge  the  firm,5  or  where  the  loan  is  not 
made  upon  the  individual  credit  of  the  borrowing  partner, 

and  it  is  shown  that  the  money  was  borrowed  for  and  ap- 

• 

Ketchum  v.  Durfee,  1  Hoffm.  Ch.  204     (15    Rep.   454);    Donnelly  «. 

538;    Tallmadge    v.    Pennoyer,    35  Ryan,  41  Pa.  St.  306. 

Barb.  120;  Bailey  v.  Clark,  6  Pick.  4  Beckham  v.  Drake,  9  M.  &  W.  99; 

372;  Green  v.  Tanner,  8  Met.  411;  Ernest  v.  Nichols.  6  H.  L.  Cas.  423; 

Peterson  v.  Roach,  32  Ohio  St.  374;  Bank  of  South    Australia  case,   8 

Norwalk  v.  Nat.  Bank  39  Ohio  St.  27  Barn.  &  C.  427;  Faith  v.  Richmond, 

Alb.  L.  J.  185:  Welkcr  Y>.  Wallace,  11  A.  &  E.  339;  Le  Roy  «.  Johnson, 

31  Ga.  362;    Graff  v.  Hitchman,   5  2  Pet.    186;  Peterson  v.   Roach,  32 

Watts,   454;    Nat.  Bank  «.  Day,  12  Ohio  St.  374;  Bank  of  Rochester  v. 

Heisk. 413;  Foster  i>.  Hall.  4  Humph.  Monteith,    1   Denio  402;  Wright  v. 

346;  Emly  v.  Lye,  15  East.  7;  Bevan  Hooker,  10  N.  Y.  51.  The  question 

v.  Lewis,  1  Sim.  376;  In  re  Worcester  is,  whether  the  name  used,  and  to 

Corn.  Ex.  Co.,  3  DeG.  M.  &  G.  180;  which  credit  is  given,  is  that  of  the 

Burmester  v.  Norris,  6  Ex.  796;  Haw-  firm,  or  the  name  which  the  firm  has 

tayne  v.  Bourne,  7  M.  &  W.  595;  In  adopted  and  used   as  the  name  to 

re  Ansonia  Fibre  Co.,  L.  R.  9  Ch.  designate  the  partnership;  it  is  only 

635.  where  such  name    has    been  used 

1  Ketchum    «.   Durfee,   1  Hoffm.  that  the  members  of  the  firm  are 

Ch.  538.  held.    National   Bank  of  Salem  e. 

*  Emly  «.  Lye,  15  East,  7.  Thomas,  47  N.  Y.  15. 

1  McNaughten's  App.  101  Pa.  St.  5  Jaques  v.  Marquand,  6  Cow.  497. 


72  NEGOTIABLE  COLLATERAL  SECURITIES. 

propriated  to  the  use  of  the  firm,  notwithstanding  the  false 
and  fraudulent  representations  of  the  borrowing  partner  re- 
lating to  the  business  of  the  firm  by  which  the  money  was 
secured.1  Where  one  partner  contracts  a  debt  representing 
to  the  creditor  that  the  money  obtained  is  for  the  benefit  of 
the  firm,  if  the  contract  is  within  the  scope  of  its  business, 
the  firm  is  liable,  whether  the  representations  were  true  or 
false.8  And  where  money  was  borrowed  by  a  partner  in 
his  own  name,  his  individual  note  being  given,  and  the 
money  is  used  for  partnership  purposes,  a  note  of  the  part- 
nership given  in  renewal  of  the  individual  note,  is  such  a 
ratification  that  the  firm  is  held  thereon.8  Where  there 
was  a  partnership  liability  for  a  debt,  evidenced  by  a  note 
with  sureties,  and  a  new  note  given  in  renewal  signed  by 
one  partner  alone,  with  the  same  sureties,  who  signed  such 
note  on  the  faith  of  representations  that  it  was  necessary  in 
the  business  of  the  firm,  and  that  the  other  partner  would 
sign  it,  upon  paying  the  note,  the  sureties  may  recover  as 
against  the  partnership,  although  the  other  partner  did  not 
in  fact  sign  the  note.4 

§53.  THE  USE  OF  TRUST  FCTNDS  AND  SECURITIES  BY 
PARTNERS. — Where  one  of  two  or  more  partners  is  a  trus- 
tee, having  the  control  and  management  of  a  trust  estate, 
and  fraudulently  uses  the  trust  money  and  securities  in  the 
business,  but  without  the  knowledge  or  privity  of  the  other 
partner  or  partners  that  the  money  so  furnished  belongs  to 
any  trust  fund,  no  joint  debt  or  obligation  is  created  as 
against  the  partnership  by  such  use.  The  act  of  the  part- 
ner is  a  breach  and  abuse  of  his  trust,  but  this  of  itself  is 
not  sufficient  to  change  the  innocent  partners  into  implied 
trustees,  nor  to  render  them  liable  as  under  contract,  to  the 

1  Stockwell  r.  Dillingham,  50  Me.  *  Union  Bank  «?.  Smith,  7  Paige, 
442.  26,  33. 

8  Ibid.;    Church    t>.    Sparrow,   5         *  McKee  «.  Hamilton,  33  Ohio  St. 
Wend.  223;  Tucker  «.  Peasley,  36  N.      7. 
H.  167. 


PLEDGE  BY   PARTNERS.  73 

cestuis  que  trust.1  Where,  however,  such  trust  funds  or 
securities  are  fraudulently  loaned  by  one  partner  having  the 
control  thereof,  and  the  other  partners  are  chargeable  with 
knowledge  that  such  securities  are  not  the  individual  prop- 
erty of  the  trustee,  the  firm,  in  the  event  of  their  loss  in  the 
course  of  its  business,  is  liable  to  the  trust  estate  for  the 
value  of  the  securities.*  Knowledge  of  the  other  members 
of  a  partnership  of  or  privity  to  such  misuse  of  trust  funds 
or  securities,  will  charge  the  partnership ;  aliter,  if  there  be 
no  notice.* 

§54.  PLEDGE  BY  PARTNER  FOR  HIS  OWN  DEBT,  OR 
DEBT  OF  THIRD  PARTY — ITS  SUBSEQUENT  RATIFICATION. 
— A.  member  of  a  partnership  has  no  authority  to  use  the 
name  and  credit  of  the  firm  to  secure  the  payment  of  his 
own  indebtedness,  or  the  indebtedness  of  a  third  party.  A 
creditor  of  a  partner,  receiving  the  securities  of  the  firm,  as 
collateral  security  for  the  individual  debt  of  such  partner, 
or  of  a  third  person,  does  so  at  his  risk  and  peril,  and  is  not 
allowed  to  recover  as  against  the  firm,  or  the  remaining 
partners,  except  he  show  their  knowledge  of  the  act  and 
consent  thereto,  or  their  subsequent  ratification.4  The 

1  In  re  Jordan,  2  Fed.  Rep.  319;  Wilson  v.  Williams,  Ib.  146;  Stamer 

Jaques  v.  Marquand,  6  Cow.  497;  ID.  Tyson  3  Hill,  379;  Miller  v.  Man- 

Hutchinson  v.  Smith,  7  Paige  26;  ice,  6  Ib.  115;  Rutledge  v.  Squires, 

Tallmadge®.  Pennoyer,  35  Barb.  120;  23  la.  53;  Hickman  «.  Reineking,  6 

Guillou  V.  Peterson,  9  Phila.  225;  Ib.  388;  Clay  v.  Cottrell,  18  Pa.  St. 

Logan  v.  Bond,  13  Geo.  192.  408:  Cooper  v.  McClushan,  22  Ib.  80; 

8  Guillou  v.  Peterson,  9  Phila.  225.  King  v.  Faber,  22  Ib.  21;  Baird  v. 

»  Hutchinson  v.  Smith,  7  Paige  26.  Cochrane,  4  S.  &  R.  397;  Williams  0. 

4  Mutual  National  Bank  v.  Rich-  Gilchrist,  11  Ib.  535;  Robinson  v. 

ardson,  33  La.  Ann.  1312;  John-  Aldridge,  34  Miss  352;  Hickm&n  v. 

son  v.  Crichton,  50  Md.  108;  Living-  Hunkle,  27  Mo.  401;  Weed  «.  Rich- 

8ton  v.  Roosevelt,  4  Johns.  251;  Os-  ardson,  2  Dev.  &  Bat.  535;  Porter 

borne  v.  Stone,  30  Minn.  25  (15  Rep.  v.  Gunnison,  2  Grant's  Cas,  297; 

52);  Selden  t>.  Bank,  3  Minn.  166;  Burleigh  v.  Parton,  21  Tex. '585; 

Rollins  v.  Stevens.  31  Me.  454;  Raust  Powell  v.  Messer,  18  Tex.  401;  Tom- 

«.  Hauselt,  41  N.  Y.  Sup.  Ct.  467;  kyns  v.  Woryard,  5  W.  Va.  216; 

Williams  v,  Walbridge,  3  Wend.  415;  Munroe  v.  Cooper,  5  Pick.  412;  Sweet- 

Gansevoort  v.  Williams,  14  Ib.  131 ;  ser  v.  French,  2  Cush.  309;  Leverson 


NEGOTIABLE  COLLATERAL  SECURITIES. 


onus  probandi  is  on  the  creditor  to  show  such  knowl- 
edge and  consent,  or  ratification.1  And  where  a  partner 
has  misappropriated  a  judgment  note,  executed  by  him  in 
the  name  of  the  firm,  to  secure  the  payment  of  his  own 
debt,  and  the  same  is  received  by  the  pledgee  with  knowl- 
edge of  the  misappropriation,  the  transaction  is  held  a  fraud, 
not  only  upon  the  partners,  but  upon  the  creditors  of  the  firm 
also.*  The  title  to  such  partnership  securities,  so  fraud- 
ulently pledged  by  the  individual  partner,  is  not  diverted 
from  the  partnership,  whether  the  creditor  was  chargeable 
with  knowledge  of  the  misappropriation  or  not.1  No  sub- 
stantial difference  exists  between  taking  the  note  of  a  firm 
for  a  private  debt  of  a  partner  by  a  creditor  of  such  partner, 
thus  pledging  the  credit  of  the  firm,  and  taking  the  property 
of  the  firm,  upon  a  purchase  by  one  of  the  partners,  to  pay 
his  private  debt.  In  both  cases,  the  act  is  equally  injurious 


v.  Lane,  13  C.  B.  N.  S.  278;  Wells  v. 
Masterman,  2  Esp.  371;  Ex  parte 
Austen,  1  M.  D.  &.  D.  247;  Ex  parte 
Bonbonus,  8  Ves.  540;  Heilbut  v. 
Nevill,  L.  R.  4  C.  P.  354;  on  appeal, 
L.  R.  4  C.  P.  473;  Elstonc.  Deacon.  L. 
R.  2.  C.  P.  20.  Where  a  bill  is  drawn 
by  one  partner  in  the  name  of  the 
firm  in  fraud  of  his  co-partners  and 
is  accepted  by  the  drawee,  and  after- 
wards paid  by  the  drawer  in  the 
name  of  the  firm,  the  acceptor  may 
successfully  deny  the  endorsement, 
but  not  the  drawing.  Garland  0. 
Jocomb,  L.  R.  8  Ex.  216. 

1  Kendall ».  Wood,  L.  R.  6  Ex.243; 
Leverson  v.  Lane,  13  C.  B.  N.  S  278; 
Edwards  ®.  Thomas  66  Mo.  468; 
Stall  t>.  Catskill  Bank.  18  Wend.  466. 
In  ex  parte  Golding,  cited  by  Collyer 
on  Partnership,  1st  ed.  p  283,  Lord 
Lyndhurst  said:  "  No  principle  can 
be  more  clear  than  that  where  a  part- 
ner and  a  creditor  enter  into  a  con- 
tract on  a  separate  account,  the  part- 


ner can  not  pledge  the  partner- 
ship funds  or  give  partnership  ac- 
ceptances in  discharge  of  the  con- 
tract so  as  to  bind  the  firm."  No 
fraud  was  charged  in  that  case.  To 
like  effect  as  to  pledge  of  partnership 
property  and  credit,  Ridley  ^.Taylor. 
13  East,  175.  A  mere  statement  by  a 
partner  that  the  money  is  wanted  for 
the  partnership  is  not  sufficient  to 
charge  the  firm  where  a  partner 
pledged  securities  of  the  firm  as  in- 
demnity upon  an  indorsement  of  his 
personal  note.  Uhler  v.  Browning, 
28  N.  J.  L.  79. 

•McNaughten's  App.  101  Pa.  St. 
204;  Purdy  v.  Poweis,  6  Ib.  492. 

•Liberty  Savings  Bank  v.  Camp- 
bell 75  Va.  534;  Bemis  v.  Wad  ill 
82  Gratt,  588,  594;  Rogers  v.  Batch- 
elor,  12  Pet.  221 ;  Heilbut  v.  Nevill 
L.  R.  4  C.  P.  854;  on  app.  Ib. 
478;  Deardorf  v.  Thatcher,  78  Mo 
128. 


PLEDGE  BY  PARTNERS.  75 

to  the  other  partners.      It  is  taking  their  common  property 
to  pay  a  private  debt  of  one  of  the  partners.1 

Where  a  partner  has  wrongfully  pledged  the  credit  or 
effects  of  the  partnership,  or  has  misappropriated  its  securi- 
ties for  his  own  individual  advantage,  the  other  partner  or 
partners  may,  by  their  subsequent  affirmative  acts,  so  far 
ratify  and  confirm  the  same  as  to  render  the  partnership 
liable.  As  where  a  partner  had  given  a  promissory  note 
in  the  name  of  the  firm  for  his  individual  debt, 
and  the  other  partner  obtained  forbearance  in  its  prose- 
cution by  a  promise  to  pay  it,  a  judgment  against  both  was 
sustained.*  Or  a  ratification  or  recognition  of  the  note  so 
misappropriated,  by  the  remaining  partners,  is  sufficient.1 
Where  such  note  has  been  ratified  by  the  other  partners,  and 
a  note  in  renewal  thereof  has  been  given,  no  further  ratifi- 
cation is  necessary.4  The  promise  of  such  partners,  im- 
plied from  such  ratification,  needs  no  consideration  for  its 
support,  as  it  does  not  come  within  the  Statute  of  Frauds.* 

§55.  THE  RULE  AS  TO  GUARANTIES  AND  ACCOMMODA- 
TION PAPER. — One  of  the  two  partners  has  no  authority, 
without  the  consent  of  his  co-partners,  to  pledge  the  credit 
of  the  firm  by  signing  commercial  paper  so  as  to  make  the 
firm  a  surety,  indorser,  or  guarantor  of  a  third  person,  or  to 
make  accommodation  acceptances  or  notes  in  the  name  of 
the  firm.  Persons  receiving  such  paper  with  knowledge  of 
or  chargeable  with  notice  that  the  act  is  a  fraudulent  pledge 
of  the  firm's  credit,  can  not  recover  as  against  the  other 
co-partners,  without  proving  their  authority  or  subsequent 
assent.  Except  in  the  hands  of  bona  fide  holders  for  value, 
before  maturity,  without  notice  of  the  want  of  authority, 

1  Dob   v.    Halsey,    16    John.    34         *  Wheeler  v.  Rice,  8  Cxish.  205. 
(Spencer  C.  J.);  Everingham  v  Ems-          'Jones    v.    Booth,    10    Vt.    268; 

worth,  7  Wend.  326;  Livingston  v.  Sweetzer  v.  French,  2  Cush.  309. 
Roosevelt,  4   Johns.  251;  Rogers  v.         *  Tilford  v.  Ramsey,  37  Mo.  563. 
Batchelor,    12  Pet.    221;    Green  v.          6  Commercial    Bank    v.  Ramsey, 

Deakin,  2  Stark.  357,  87  Mo.  568. 


76  NEGOTIABLE   COLLATERAL   SECURITIES. 

such  indorsements,  or  guaranties,  or  accommodation  accept- 
ances, are  without  validity,  and  no  rights  can  be  acquired 
thereunder  as  against  the  partnership.1  A  person  who  takes 
a  negotiable  note,  signed  or  indorsed  as  stated,  showing 
upon  its  face  that  the  firm  is  a  mere  surety  or  guarantor 
thereon  for  some  third  person,  does  so  at  his  peril,  as  he  is 
chargeable  with  notice  of  every  fact  to  which  inquiry  would 
lead,  and  to  be  protected  must  ascertain  the  authority  of  the 
partner  to  indorse  the  firm  name  as  surety  or  guarantor 
thereon.*  Such  an  ftct  is  not  within  the  usual  course  of 
partnership  business,  and  the  burden  of  affirmatively  proving 
a  special  agreement  authorizing  such  act  is  upon  the  holder, 
the  act  of  the  partner  alone  not  being  sufficient.8  Where 
a  person  takes  a  note  showing  upon  its  face  that  it  is  made 
by  one  partner  in  the  name  of  the  firm,  for  the  accommoda- 
tion of  another  person,  the  holder  can  not  recover  as  against 
the  other  partners,  without  proving  their  assent.4 

§56.  THE  RIGHTS  OF  THE  BONA  FIDE  INDORSEE, 
UNDER  SUCH  PLEDGE. — A  bona  fide  indorsee  for  value,  be- 
fore maturity,  of  a  negotiable  bill  or  note  given  by  a  partner 
in  the  name  of  a  partnership,  and  without  notice  of  the 
equities  arising  from  the  fact  that  it  had  been  fraudulently 
transferred  for  the  partner's  personal  debt,  is  always  pro- 
tected. If  any  one  should  suffer  by  reason  of  the  fraudulent 
conduct  of  the  partner  in  thus  misappropriating  the  firm's 
credit  or  property,  as  against  an  innocent  indorsee  of  such 
paper,  without  notice,  it  should  be  the  person  who  has  had 

1  Atlas  Nat.  Bank  v.  Savery,  127  78  111.  234 ;  Marsh  t>.  Thompson  Nat. 
Mass.  275 ;  Sweetzer  v.  French,  2  Bank,  2  Bradw.  217  ;  Davis  v.  Black- 
Gush.  309;  Osborne  v.  Stone,  30  well,  5  Ib.  32 ;  Rollins  v.  Stevens,  31 
Minn.  25  (13  N.  W.  R.  922);  Bauk  of  Me.  454;  First  Nat.  Bank  v.  Breese, 
Rochester  v.  Bo  wen,  7  Wend.  158  ;  19  Iowa,  640;  Langan  v.  Hewett,  13 
Fieldens  v.  Lahens,  9  Bosw.  445;  S.  &  M.  122. 

Evans  c.  Wells,  20  Wend.  254;  22  *  Davis  ».  Blackwell,  5  Bradw.  32. 

Ib.  824;  Bank  of  Chemung  v.  Brad-  'Ibid;  Osborne  «.  Carr,  sjupra. 

ner,  44  N.  Y.  080;  Hendrie  v.  Berk-  *  Massachusetts     Nat.     Bank    «. 

owitz,  37  Cal.  113 ;  Zuel  v.  Bowen,  Law,  127  Mass.  72. 


PLEDGE   BY   PARTNERS. 


77 


sufficient  confidence  to  enter  into  such  close  commercial 
relations  with  him  as  that  of  partnership.1  To  support  the 
indorsee's  title,  he  must  have  advanced  value  on  the  faith 
and  credit  of  the  paper  in  good  faith.9  Nor  is  it  material 
that  the  indorser  from  whom  title  was  acquired  to  a  bill 
of  exchange  valid  upon  its  face,  had  himself  notice  that  it 
was  open  to  defenses."  Evidence  will  not  be  received  that, 
by  the  articles  of  partnership,  one  partner  had  no  right  to 
indorse  negotiable  paper,  to  defeat  the  title  of  a  bona  fide 
indorsee  for  value,  of  such  paper,  receiving  the  same  as  col- 


1  Blodgett  «.  Weed,  119  Mass.  215 ; 
Wait  v.  Thayer,  118  Ib.  474  ;  War- 
ren v.  French,  6  Allen,  317 ;  Hay- 
ward  v.  French,  12  Gray,  453  ;  Che- 
mung  Canal  Bank  v.  Bradner,  44  N. 
Y.  680 ;  Michigan  Bank  «.  Eldred,  9 
Wall.  544  ;  Mechanics'  Bank  v.  Fos- 
ter, 29  How.  Pr.  408 ;  Livingston  v. 
Roosevelt,  4  Johns.  251  ;  Smith  ®. 
Lusher,  5  Cow.  688  ;  Evans  v.  Wells, 
20  Wend.  254 ;  22  Ib.  324 ;  Redlon 
«.  Churchill,  73  Me.  146;  Waldo 
Bank  «.  Greeley,  16  Ib.  419 ;  Parker 
v.  Burgess  5  R.  I.  277 ;  Haldeman  v. 
Bank,  28  Pa.  St.  440;  Manufac- 
turers Bank  v.  Winship,  5  Pick.  11; 
Hogarth  v.  Latham,  L.  R.  3  Q.  B. 
D.,  643 ;  Ellston  v.  Deacon,  L.  R.  2 
C.  P.  20  ;  ex  parte  Bushell,  3  M.  D. 
&  D.  615 ;  ex  parte  Meyer.  DeGcx, 
632  (an  accommodation  bill) ;  Lane 
v.  Williams,  2  Vern.  277 ;  Wintle  v. 
Crowther,  1  Cr.  &  J.  316  ;  R'dley  ®. 
Taylor,  13  East,  175;  Sanderson  v. 
Brooksbank,  4  Car.  &  P.  286  ;  Lewis 
v.  Reilly,  1  Q.  B.  349;  Swan  v. 
Steele,  7  East,  210. 

*  Clark  v.  Dearborn,  6  Duer,  309  ; 
Munroe  t>.  Cooper,  5  Pick.  412;  Mix 
0.  Muggy,  28  Conn.  186  ;  Blodgett  v. 
Weed,  119  Mass.  215.  The  rule  in 
England  is,  that  if  a  bill  is  drawn 


and  accepted  by  one  partner  in  fraud 
of  the  firm,  the  holder  can  not  recov- 
er against  the  firm  unless  he  can 
show  that  he  gave  value  for  ihe  bill. 
Hogg  v.  Shene,  18  C.  B.  N.  S.  426 ; 
Bailey  v.  Bid  well,  13  M.  &  W.  73 ; 
Smith  v.  Braine,  15  Jur.  287,  Q,  B. ; 
Harvey  v.  Towers,  6  Ex.  656 ;  Berry 
v.  Alderman,  14  C.  B.  95  ;  Heath  v. 
Snnsom,  2  B.  &  Ad.  291.  And  in 
Heilbut  v.  Nevill.  L.  R.  4  C.  P.  354, 
affirmed  L.  R.  5  C.  P.  478,  where  a 
partner  in  fraud  of  the  partnership, 
indorsed  and  delivered  bills  of  ex- 
change belonging  to  the  firm  to  the 
defendant  in  satisfaction  of  his  pri- 
vate debt,  the  defendant,  who  was 
cognizant  of  the  fraud,  having  real- 
ized the  bills,  the  assignees  of  the 
fraudulent  partner,  together  with 
the  other  partner,  without  disaffirm- 
ing the  contract,  sued  the  defendant 
.  for  wrongful  conversion.  They 
were  allowed  to  recover  on  the  mon- 
ey counts,  Baron  Cleasby  saying 
that  no  property  passed  by  the  in- 
dorsement and  delivery  of  the  bills 
by  the  partner  for  his  own  debt,  the 
indorsee  being  cognizant  of  the 
fraud. 

1  Hogarth  D.  Latham,  L.  R.  8  Q. 
B.  D.  643. 


78  NEGOTIABLE   COLLATERAL   SECURITIES. 

lateral  security  upon  discount  of  the  partner's  note ;'  nor 
will  such  verbal  understanding  defeat  the  title  of  an  in- 
dorsee for  value,  although  the  bill,  indorsed  by  the  partner 
in  the  firm  name  and  payable  to  the  firm,  was  the  partner's 
own  property.*  Where  promissory  notes,  made  payable  to 
a  partnership,  were  indorsed  as  collateral  security  by  one 
partner  to  another  firm,  for  value,  the  pledgees  thereof,  be- 
ing bona  fide  holders  for  value,  were  entitled,  whether  the 
other  partner  knew  of  the  indorsement  or  not,  to  the  benefit 
of  any  mortgage  or  other  security  subsequently  given  to 
secure  the  payment  of  the  notes,  the  first  firm  having  become 
insolvent.8  But  where  such  paper  is  received  after  due  as 
collateral  security,4  or  where  the  liability  of  the  partnership 
upon  negotiable  paper  has  been  satisfied,  an  indorsee  receiv- 
ing the  same  from  a  partner  for  his  individual  debt,'  are 
subject  to  equities. 

§57.  NOTICE  OF  MISAPPROPRIATION  TO  CHARGE  THE 
PLEDGEE. — Notice  of  fraud,  in  order  to  charge  the  pledgee 
advancing  value,  in  good  faith,  upon  commercial  paper, 
wrongfully  misappropriated  by  a  partner,  with  knowledge 
thereof,  and  thus  defeat  his  claim  as  against  the  partnership, 
must  be  more  than  a  mere  suspicion  of  defects  or  knowledge 
of  facts  which  might  excite  suspicion  in  the  mind  of  a 
cautious  man.  Neglect,  not  amounting  to  fraud  or  bad 
faith,  will  not  defeat  the  rights  of  a  pledgee  of  such  paper.* 
There  must  be  actual  knowledge,  suspicion,  or  cause  of  sus- 
picion of  fraud  upon  the  partnership  in  the  making  and 
negotiation  of  the  note,  to  defeat  his  title.7  No  such  knowl- 

1  Michigan   Bank   c.    Eldred,     9  Freemans'  Nat.  Bank  v.  Savcry,  127 

Wall.  544.  Ib.  79  ;  Murray  v.  Lardncr,  2  Wall. 

»  Barrett  v.  Russell,  45  Vt.  43.  110  ;  Cromwell  v.  County  of  Sac.  90 

»  Walker  «.  Lee,  15  S.  C.  142.  U.  S.  51 ;   Farrell  v.  Lovctt,  68  Me. 

4  Thompson  v.  Hale,  6  Pick.  259.  820;  Kellogg®.  Curtis,  09  Ib.  212; 

•  Dana  v.  Conant,  80  Vt.  43.  Hobart  v.  Penny,  70  Ib.  248. 

•  Recllon  0.  Churchill,  73  Me.  146  ;  '  Blodgett   v.   Weed,   119   Mass. 
Smith  v.  Livingston,  111  Mass.  842  ;  215. 


PLEDGE  BY  PARTNERS.  79 

edge  or  suspicion  of  fraud  arose  where  one  of  two  partners 
delivered  to  a  third  person,  a  co-partner  with  him,  in  another 
firm,  a  blank  draft  drawn  by  the  partner,  in  the  name  of  the 
first  firm,  and  the  blank  being  filled  by  such  partner  with 
his  own  name  as  drawee,  with  the  name  of  the  other  firm  as 
drawer,  in  the  presence  of  the  person  loaning  the  money, 
the  partner  indorsing  the  bill,  the  money  was  obtained  upon 
the  credit  of  the  bill.  The  other  partner  who  had  not 
signed  the  blank  draft,  was  obliged  to  pay  the  same,  although 
the  money  was  misappropriated.1  The  possession  of  a  nego- 
tiable promissory  note  by  the  maker,  after  indorsement  has 
been  made  in  the  name  of  the  firm,  is  sufficient  to  charge  a 
third  person  advancing  money  thereon,  with  notice  that  the 
indorsement  was  intended  for  the  accommodation  of  the 
partner,2  or  the  character  of  the  transaction  may  amount  to 
notice.3  In  such  cases,  the  burden  of  proving  the  assent  of 
the  other  partners  to  the  use  of  such  accommodation  paper, 
bearing  the  indorsement  of  the  firm,  when  its  character  as 
accommodation  paper  has  been  established,  is  upon  the 
holder  of  such  paper  ;4  but  the  proof  may  be  from  circum- 
stances, and  not  of  an  express  and  positive  agreement.6 

§58.  THE  RECOVERY  OF  THE  BONA  FIDE  INDORSEE 
FOR  VALUE. — Where  one  member  of  a  firm  makes  his  own 
note  payable  to  his  own  order  and  indorses  thereon  the 
name  of  his  firm,  receiving  and  appropriating  the  proceeds 
to  his  own  use,  the  firm  being  duly  notified  is  liable  therefor 

1  Bank  of  Cliemung  v.  Bradner,  44  drie  v.  Berkowitz,  37  Cal.  119 ;  Lang 

N.  Y.  680.  7>.  Waring,  17  Ala.  145  ;    Chenowith 

1  Moynahanfl.  Hanford,  42  Mich.  v.  Chamberlain,  6  B.  Mon.  60;  La- 

329 ;  Hendrie  v.  Berkowitz,  27  Cal.  verty  v.  Burr,  1   Wend.   529 ;    Me- 

119 ;  Stall  v.  Catskill  Bank,18  Wend.  chanics  Bank  v.  Livingston,  33  Barb. 

466 ;   Fieldens  v.  Lahens,  9  Bosw.  458 ;  Tutt  v.  Adams,  24  Mo.    186 ; 

445.  Heffron  0.  Hanaford,  40  Mich.  305 ; 

8  Union  Nat.  Bank  v.  Underbill,  Dob  v.  Helsey,  16  Johns.  34. 

21  Hun.  278.  •  First  Nat.  Bank  ».  Breeze,  39  la. 

4  Darling  v.  March,  22  Me.  184 ;  640 ;  Sweetzer  v.  French,  2  Cush. 

Foot  v.  Sabin,  19  Johns.  154 ;  Hen-  315. 


80  NEGOTIABLE   COLLATERAL  SECURITIES. 

to  an  indorsee,  who,  in  good  faith,  before  maturity,  has 
given  value  for  the  note,  in  ignorance  of  any  circumstances 
affecting  its  validity.1  The  same  rule  applies  where  a  part- 
ner has  general  authority  to  accept  bills  of  exchange  for  the 
firm,  and  a  bill  is  accepted  for  more  than  is  due  from  the 
firm,  there  being  no  fraud,  the  bona  fide  holder  for  value 
of  the  bill  is  entitled  to  sue  the  partnership  upon  it  at  all 
events,  to  the  extent  to  which  there  is  authority,  although 
the  additional  sum  be  in  payment  of  a  pre-existing  indi- 
vidual debt  of  the  partner.1  The  like  principle  applies 
in  the  case  of  a  partnership  holding  the  acceptance  of  a  third 
person,  where  one  of  the  two  partners  indorses  the  same  to  a 
creditor  for  a  debt  partly  due  from  the  firm  and  partly  from 
himself  alone,  the  bona  fide  indorsee  is  entitled  to  recover 
against  the  firm  to  the  extent  of  the  debt  of  the  firm.  Re- 
covery may  be  had  upon  a  count  for  the  consideration  if 
not  upon  the  bill.* 

§59.  EFFECT  OP  TAKING  SECURITY  FROM  INDIVIDUAL 
PARTNER. —  Generally,  where  the  holder  of  negotiable 
paper  issued  in  the  name  of  a  partner  receives  a  new  secur- 
ity from  one  or  more  of  the  partners  liable  on  the  same,  the 
remaining  members  of  the  partnership  are  discharged.  But 
in  cases  where  the  holder  for  value  of  such  bills  or  notes, 
by  an  agreement  made  at  the  time  retains  the  principal  note 
or  other  personal  evidence  of  the  debt,  and  reserves  his 
right  to  proceed  against  the  other  partners,  he  may  main- 
tain an  action  against  the  latter  on  the  debt,  in  the  event 
that  the  new  note  given  by  the  individual  partner  should 
prove  insufficient.4  Where  the  bond  of  one  partner  was  taken 

1  Redlon  «.  Churchill,  73  Me.  146  ;  «  Est.  of  Davis,  5  Whart.  530; 

Wilson  t>.  Richards,  27  Minn.  837;  Yarnell  v.  Anderson,  14  Mo.  619; 

Gansevoort  «.  Williams,  14  Wend.  Vernon  t.  Manhattan  Co.,  22  Wend. 

146:  Swan  «.  Steele,  7  East,  210.  '183;  Parker  v.  Cousins,  2  Gratt.  873; 

*  Ellston  t>.  Deacon,  L.  R.  2  C.  P.  Thompson  v.  Percival,  5  B.  &  A. 

20  925;  Bedford  v.  Dakin,  2  Ib.  210. 

•Ibid. 


PLEDGE  BY  PARTNERS.  81 

at  the  time  of  making  a  loan  to  a  partnership,  and,  as  the 
consideration  for  loaning  the  money,  the  other  partners  are 
not  bound  thereon.  The  acceptance  of  the  bond  havitg  extin- 
guished the  simple  contract  debt,  it  could  no  longer  be 
treated  as  a  collateral  security.1  A  judgment  recovered 
against  two  persons  as  partners,  for  money  borrowed  for  the 
use  of  the  firm,  although  remaining  unsatisfied,  constitutes 
a  bar  to  an  action  by  the  same  plaintiffs  against  a  third 
person  who  is  afterwards  discovered  to  have  been  really 
interested  as  a  partner  in  the  business,  for  the  purposes  for 
which  the  money  was  borrowed.1 

§  60.  RELEASE  OF  COLLATERAL  SECURITY  OF  PARTNER 
BY  PAYMENT. — The  general  rule  was  applied  that  partner- 
ship property  is  first  used  in  paying  partnership  debts,  to  the 
exclusion  of  the  creditors  of  the  individual  partners,  and 
that  the  creditors  of  the  latter  are  first  paid  from  the 
separate  effects  of  the  debtor  before  the  partnership  credi- 
tors can  claim  anything,  in  a  case  where  one  partner  of  a 
firm  had  deposited  with  a  creditor  a  promissory  note  be- 
longing to  himself  as  collateral  security  for  the  payment  of 
a  particular  debt  of  the  firm  owing  to  such  creditor.  The 
debt  having  been  paid,  the  partner  demanded  the  return  of 
his  collateral  note,  or  of  the  proceeds  thereof,  the  pledgee 
having  in  the  meantime  collected  the  note  at  maturity. 
The  pledgee  refused  to  pay  over  the  proceeds  of  the  note, 
claiming  to  hold  them  to  apply  upon  other  unadjusted 
claims  against  the  partnership.  The  firm  being  solvent,  the 
collateral  note  or  the  proceeds  thereof,  were  ordered  to  be 
returned  to  the  individual  partner.3  Where,  however,  a 
partnership,  consisting  of  four  persons,  pledged  securities 
for  the  payment  of  a  bill  of  exchange,  and  the  interests  of 
three  of  the  partners,  after  dissolution,  came,  by  assignment, 
into  the  hands  of  one  person,  who  tendered  to  the  pledgee 

1  Bond    v.  Aitkin,    6    W.    &    S.  P.  D.  403,  affirmed  in  L.  R.  4  App. 

165.  Gas.  504. 

1  Kendall  v.  Hamilton,  L.  R.  3  C.  *  Adams  v.  Sturgess,  55  111.  468. 
6 


82  NEGOTIABLE   COLLATERAL  SECURITIES. 

the  amount  for  which  the  securities  were  held,  without  the 
knowledge  or  consent  of  the  other  partner,  the  refusal  of 
the  pledgee  to  return  the  securities,  and  his  subsequent  sale 
thereof,  upon  the  dishonor  of  the  bill,  for  a  larger  sum  than 
the  amount  due  him,  was  not  such  a  conversion  as  would 
entitle  the  three-fourths  owner  of  the  security  to  maintain 
an  action  of  trover.1 


CHAPTER  VII. 

COLLATERAL  SECURITIES  IN  RELATION  TO  BANKS. 

§61.  The  banker's  general  lien  on  securities. 

62.  His  lien  under  contract,  and  as  against  third  persons. 

63.  The  banker's  liability  holding  securities. 

64.  The  rights  of  national  banks  under  mortgage  securities. 

§  61.  THE  BANKER'S  GENERAL  LIEN  ON  SECURITIES. — 
A  banker's  lien  is  either  general  or  special.  His  general  lien, 
arising  under  the  usual  relations  of  banker  and  customer, 
is  upon  all  funds  and  securities  held  by  him,  for  the  general 
balance  of  the  customer.8  Such  a  general  lien  arises  upon 
the  maturity  of  a  note  discounted  for  the  customer,  and 
then  held  by  the  banker,  and  will  extend  to  other  commer- 
cial paper,  subsequently  acquired  by  the  banker  in  the 
usual  course  of  business  with  his  customer,  and  to  any 
commercial  paper  belonging  to  the  customer,  indorsed  by 

1  Harper  c.  Goodsell,  L.  R.  5  Q.  B.  8  Ch.  41 ;  In  re  Gen.  Ass.  Co.  L.  R 

422.  14  Eq.  507;  Bank  of  the  Metropolis 

*  Scott  v.  Franklin,  15  East,  428;  «.  N.  E.  Bank,  1  How.  234;  s.  c.  6 

Vanderzee  v.  Willis,  3  Bro.  C.  C.21;  Ib.  212;  Dumont  v.   Fry,   13  Fed. 

Leonino  «.  Leonino,  L.  R.    10   Ch.  Rep.  423. 
D.  460 ;  In  re  European  Bank,  L.  R. 


THE  BANKER'S  LIEN.  83 

him  to  the  banker  for  the  purpose  of  collection.1  The 
rule  has  been  applied  where  bills  of  exchange  deposited  as 
collateral  security  for  a  loan  account  were  applied,  so  far  as 
not  used,  to  meet  over-drafts  on  another  account.*  But 
such  lien  does  not  extend  to  money  left  on  deposit  with  the 
banker  as  against  an  appropriation  of  it  by  the  customer  to 
a  holder  for  value  of  a  check,  drawn  against  such  account, 
and  is  confined  to  such  securities  and  valuables  of  the  cus- 
tomer as  may  have  been  placed  in  the  custody  of  the 
banker,  and  upon  the  faith  of  which,  either  in  possession  or 
expectancy,  credit  has  been  extended  by  the  banker.1  And 
to  a  lien  on  shares  of  stock  in  the  bank,  and  dividends 
accruing  thereon  under  a  clause  in  the  charter,4  but  not  to 
documents  or  securities  deposited  for  safe  custody  or  for 
some  purpose  foreign  to  the  relations  of  banker  and  cus- 
tomer.' 

§  62.  His  LIEN  UNDER  CONTRACT,  AND  AS  AGAINST 
THIRD  PERSONS. — Where  funds  or  securities  are  deposited 
with  a  banker  as  collateral  security  to  cover  a  special  ad- 
vance or  discount,  the  lien  of  the  banker  thereon  is  limited, 
and  is  discharged  upon  repayment  of  such  special  advance  ; 
and  a  claim  of  a  banker  of  a  general  lien  for  balances  or 
on  account  of  other  loans,  upon  such  funds  or  securities, 
is  not  supported,  where  a  contract  for  the  special  appropria- 
tion thereof  is  established.6  The  rule  applies  equally  to 

1  Commercial  Bank  v.  Hughes,  17  3  Gilm.  233. 

Wend.  94;  City  Bank  v.  Armstrong,  4  Hague  v.  Dandeson.  2  Ex.  741. 

4  Dev.  59;  Muench  v.  Nat.  Bank,  11  'Leese  v.  Martin,  L.  R.  17  Eq.  224; 

Mo.  App.  144;  Ford®.  Thornton,  3  Brandao  v.  Barnett,  1  M.  &  G.  908; 

Leigh.  695;  Bank  v.  Bank,  11  How.  s.  c.  12  C.  &  F.  787. 

239;  Brandao  «.  Barnett,  3  C.  B.  519;  •  Duncan  v.  Brennan,  83  K  Y. 

Scott  v.  Franklin,  15  East,  428;   ex  487;  Muench  v.  Nat.  Bank,   11  Mo. 

parte  Pease,  1  Rose,  232;   ex  parte  App.   144;  Lane  v.   Bailey,   47  Ib. 

"Wakefield  Bank,  19  Ves.  25.  395;  Neponset  Bank  v.   Leland,   5 

* In  re  European  Bank,  L.  R.  8  Met.  259;  Grant  v.  Taylor,  35  N.  T. 

Ch.  41.  Supr.  Ct.  338;  Wyckoff  v.  Anthony, 

'Fourth  Nat.  Bank  v.  City  Nat.  90  N.  Y.  442;  Gould  v.  Fanners  L. 

Bank,  68  111.  398;  Russell «.  Hadduck,  &  T.  Co.,  23  Hun,  322;  In  re  Boys, 


84  NEGOTIABLE   COLLATERAL   SECURITIES. 

stock  brokers  and  others,  who  have  received  collateral 
securities  for  their  advances  under  a  special  agreement  to 
cover  a  particular  transaction.  They  are  not  allowed  after 
repayment  and  settlement  of  the  special  contract,  to  apply 
such  securities  upon  a  general  balance  or  other  claim.1 

The  banker's  general  lien  attaches  to  all  funds  and 
securities  deposited  with  him  by  his  customer,  as  against 
not  only  his  customer,  but  the  secret  equities  of 
third  parties.  In  the  current  business  of  a  bank,  the 
fact  that  an  account  is  kept  in  the  name  of  a  person 
"  as  trustee "  does  not  charge  the  bank  with  greater 
duties  in  the  payment  of  checks  thereon,  which  it  is  entitled 
to  presume  are  signed  in  the  ordinary  course  of  business  of 
the  trust  estate.  The  rule  is  otherwise,  where,  upon  the 
insolvency  of  the  trustee,  the  bank  seeks  to  assert  a  general 
lien  on  such  fund  as  against  the  beneficiaries  under  the 
trust,  since  the  bank  is  chargeable  with  knowledge  that  the 
trustee  is  acting  for  a  beneficiary.  This  inference  arises 
where  the  word  u  as  trustee  "  is  used,  even  without  naming 
the  cestuis  que  trust,  or  as  "  general  agent."1  The  rule  is 
applied  against  the  general  lien  of  a  banker  in  cases  where 
no  trust  is  disclosed  if  the  fund  or  securities  can  be  traced, 
whether  the  trustee  has  also  money  belonging  to  him  de- 
posited in  the  same  bank.8 

§  63.  THE  BANKER'S  LIABILITY,  HOLDING  SECURI- 
TIES.— Bankers,  and  national  banks,  may  hold  collateral 

L.  R  10  Eq.  467;   Latham  t>.  Bank  Col.  C.  C.  241;  Boodenham  v.  Hos- 

of  India,  L.  R.  17  Eq.  205;   In  re  kyns.  2  De  G.  M.  &  G.  903. 

European  Bank,  L.  R.  8  Ch.  41;   In  'Farmers'  Nat.  Bank  v.  King,  57 

re  Gen.  Ass.  Co.  L.  R.  14  Eq.  507.  Pa.  St.  502;  Van  Alen  v.  American 

1  Wyckoff  v.  Anthony,  90  N.  Y.  Nat.  Bank,  52  N.  Y.  1;  National 

442;  McVee  v.  Gorst,  L.  R.   4  Eq.  Bank  v.  Insurance  Co.  104  U.  S.  54, 

815,  325.  67;  Knatchbull  v.  Hallett,  L.  R.  13 

*  National  Bank  v.  Insurance  Co.,  Ch.  D.  696;  Birt  v.  Birt,  L.  R.  11  Ch. 

104  TJ.  S.  54;    Duncan  v.  Jaudon,  15  D.  773  n;  Pennell  v.  Deffell,  4  DeG. 

Wall.  165;  Bailey  «.  Finch,  L.  R  7  M.  &  G.  372,  388;  Frith  ».  Cartland, 

Q.  B.  34;  ex  parte  Knightston,  L.  2  H.  &  M.  417. 
R  7  Ch.  632;  Pannell  v.  Hurley,  2 


THE  BANKER'S  LIEN.  85 

securities  for  the  performance  of  contracts  between  third 
parties,  and  such  corporations  are  estopped  to  insist  that 
the  act  is  ultra  vires,  as  to  do  so  would  enable  them  to 
perpetrate  a  fraud  upon  innocent  persons  entering  upon 
such  contracts  in  reliance  upon  the  representations  made.1 
But  a  national  bank  has  no  power,  upon  the  deposit  of  col- 
lateral securities  to  guarantee  the  undertaking  or  obligation 
of  the  pledger,  since  it  has  no  power  to  loan  its  credit  in 
this  manner.8  Negotiable  bonds  held  as  collateral  security 
by  a  bank  for  loans  and  discounts,  were  stolen  at  a  time 
when  the  pledger  was  not  indebted  thereto.  The  question 
of  negligence  on  the  part  of  the  bank  was  for  a  jury ;  if  it  had 
been  negligent,  the  proper  measure  of  damages  was,  the 
value  of  the  bonds  at  the  time  they  were  stolen.8  Where 
such  bonds,  pledged  with  a  bank  as  collateral  security,  were 
stolen  before  the  note  for  which  they  were  given  as  col- 
lateral security  had  become  due  and  payable,  in  an  action 
upon  the  note,  the  agreement  of  the  bank  relative  to  the 
safe  keeping  of  the  bond  being  an  independent  promise,  and 
not  a  condition  of  the  promise  to  pay  in  the  note,  the  burden 
of  showing  negligence  was  on  the  pledger.4  Nor  will  evidence 
merely  that  bonds  were  received  by  a  bank  for  safe-keeping, 
and  were  not  returned  to  the  depositor  when  called  for 
because  they  had  been  stolen  with  other  securities,  be  suffi- 
cient to  authorize  a  recovery  of  their  value  from  the  bank.* 

§  64.  THE  RIGHTS  OP  NATIONAL  BANKS  UNDER  MORT- 
GAGE SECURITIES. — A  national  bank  is  permitted  to  enforce 
the  collection  of  negotiable  promissory  notes  by  foreclosing 
the  mortgage  or  deed  of  trust  on  real  estate,  given  as 

1  Bushnell    v.    Chautauqua     Nat.  4  Winthrop  Savings  Bank  «.  Jack- 
Bank,  10  Hun.  378.  son,  67  Me.  570;   Mills  v.   Gilbreth, 

*  Seligman  t>.  Nat.  Bank,   (U.  S.  C.  47  Ib.  330. 

C.  Va.)  9  Rep.  72.  •  Wylie    ».    Northampton    Nat. 

3  Third  Nat.  Banks.  Boyd,44Md.  Bank,  64  How.  Pr.  456;  otherwise, 

47;  First  Nat.  Bank  •».  Ocean  Nat.  where    lost    by   gross    negligence. 

Bank,  48  How.  Pr.  148.  Bank  v.  Lent,  39  Ohio  St.  105. 


86  NEGOTIABLE  COLLATERAL  SECURITIES. 

security  thereon  where  such  note  and  mortgage  are 
held  as  collateral  security  for  the  payment  of  a  present 
loan,  notwithstanding  the  provisions  of  sections  5136  and 
5137  of  the  National  Banking  Act,  authorizing  loans  on 
personal  property  only  and  restricting  the  acquisition  of 
real  estate.  In  National  Bank  v.  Matthews,1  a  promissory 
note  and  deed  of  trust  were  pledged  as  collateral  security 
with  a  national  bank,  and  the  principal  debt  not  being  paid 
at  maturity,  and  default  having  occurred  in  the  collateral 
notes,  the  trustee  was  directed  to  sell  the  mortgage  se- 
curity. The  maker  of  the  notes  filed  a  bill  in  equity,  seek- 
ing to  restrain  the  sale  on  the  ground  that  the  bank  had 
violated  the  provisions  of  sections  5156  and  5137  referred 
to.  The  United  States  Supreme  Court  (Swayne,  J.)  in 
its  decision,  declared  "  the  impending  danger  of  a  judgment 
of  ouster  was  the  check,  and  none  other,  contemplated  by 
Congress.  That  has  always  been  the  punishment  prescribed 
for  the  wanton  violation  of  a  charter,  and  it  may  be  made  to 
follow  whenever  the  proper  public  authority  shall  see  fit  to 
invoke  its  application.  A  private  person  can  not,  directly, 
or  indirectly,  usurp  this  function  of  the  government."  The 
rule  has  been  generally  approved  that  such  a  conveyance  is 
not  void,  but  only  voidable.1 

A  national  bank  may  hold  mortgage  security,  where  the 
consideration  is  a  pre-existing  indebtedness,  new  notes 
being  executed  therefor  at  the  time  the  security  is  de- 
livered.8 Where  the  title  by  mortgage  or  conveyance  is 
not  taken  to  the  bank  directly,  the  case  is  not  within  the 

1  99  U.  S.  621.  Nat.  Bank,  16  Kan.  341;  Turner  «. 

1  Silver  Lake  Bank  v.    North,  4  National  Bank,  78  Ind.  19;  Bank  v. 

Johns.  Ch.  870;  Goundie  v.  North-  Poiliaux,  3  Rand.  136;  Wrotten  t>. 

arapton  Co.  7  Pa.  St.  233;  Baird  v.  Armat,    31    Gratt.  228;    Runyan  v. 

Bank  of  Washington,  11  8.  &  R.  Coster,   14  Pet.  122;  Gold  Mining 

411;  Leazure  v.  Hillegas,  7  Ib.  320;  Co.*.  Nat.  Banking  Co.,  96  U.  S. 

Thornton  v.  Nat.  Ex.  Bank,  71  Mo.  640;  Nat.  Bank  v.  Mears,8  Biss.158; 

221;  First  Wat.  Bank  *.  Haire.  86  Nat.  Bank  v.  Rowell,  2  Dill.  871. 

la.  443;  Wood  v.  People's  Nat.  Bank,  •  Howard  Nat.  Bank  v.  Loomis,  51 

83  Pa.   St.  57;  Orm  v.  Merchants'  Vt.  849. 


MISAPPROPRIATION  IN  PLEDGE.  87 

statute,  the  fact  that  the  title  may  enure  indirectly  to 
the  security  and  benefit  of  the  bank  not  vitiating  the 
transaction.1 


CHAPTER  VIII. 

MISAPPROPRIATION    OF    NEGOTIABLE    INSTRUMENTS     IN 

PLEDGE. 

§65.  The  title  of  the  pledgee,  under  misappropriation  of  negotiable  in- 
struments. 

66.  Misappropriation  of  blank  acceptances  and  of  accommodation  paper. 

67.  Or  where  pledger  has  temporary  possession  of  pledged  securities. 

68.  The  pledge  of  forged  collateral  securities,  and  illegal  pledges. 

69.  Pledge  of  misappropriated,  lost  or  stolen  securities  after  maturity. 

70.  Misappropriation  of  negotiable  securities  by  agents. 

71.  Wrongful  pledges  by  agent,  for  antecedent  debt. 

72.  The  rule,  as  applied  to  bankers. 

73.  The  rule,  as  applied  to  executors  and  administrators. 

74.  And  to  directors  of  corporations. 

75.  What  notice  of  defects,  etc.,  will  defeat  the  title  of  the  pledgee. 

76.  Notice  by  the  terms  of  the  collateral  securities. 

77.  Cases  where  notice  was  not  presumed. 

78.  Recovery  of  the  pledgee  limited  to  advances. 

§  65.  THE  TITLE  OP  THE  PLEDGEE  UNDER  MISAPPRO- 
PRIATION OF  NEGOTIABLE  INSTRUMENTS. — The  use  of  ne- 
gotiable instruments,  as  bills  of  exchange  or  promissory 
notes,  for  the  purposes  of  collateral  security,  indorsed 
where  required,  or  indorsed  in  blank,  or  payable  to  bearer, 
is,  under  the  general  commercial  law,  so  highly  favored, 
that  the  pledgee  thereof  receiving  such  negotiable  col- 
lateral securities  before  maturity,  in  good  faith,  and  without 
notice  of  equity,  is  a  holder  for  value,  and  protected,  al- 

1  First  Nat.  Bank  v.  Haire,  36  la. 
443. 


88 


NEGOTIABLE   COLLATERAL  SECURITIES. 


though  the  act  of  pledge  by  the  person  entrusted  with  the 
title  and  apparent  absolute  ownership  thereof  is  a  fraud 
upon  the  real  owner,  and  made  without  authority.  The 
pledgee's  title,  having  acted  in  good  faith,  and  without 
notice,  and  given  value  upon  the  credit  of  such  apparent 
absolute  ownership,  cannot  be  impeached.  He  enjoys  the 
benetit  of  the  presumption  the  law  makes  in  favor  of  the 
holders  of  negotiable  instruments,  that  the  pledger  is  the 
owner  thereof,  by  a  transfer  for  value,  in  good  faith.1  The 
protection  thus  afforded  the  pledgee  of  negotiable  collateral 
securities,  receiving  the  same  before  maturity,  for  value,  and 
without  notice  of  equities,  is  extended  to  cases  of  pledge 
of  such  collateral  securities  where  they  have  been  received 
from  one  who  has  stolen  or  found  the  same.  The  pk-dgee, 
receiving  such  negotiable  instruments  in  good  faiih  and 
without  notice  is  a  holder  for  value  ;  and  only  bad  faith, 
which  is  never  presumed,  can  defeat  his  title.* 


1  Swift  v.  Tyson,  16  Pet.  1 ;  Good- 
man v.  Simcnds,  20  How.  843;  Mer- 
chants' Bankt>.  State  Bank,  10  Wall, 
604;  Hotchkiss  v.  Nat.  Bank,  21  Ib. 
354;  Railroad  Co.  •».  National  Bank, 
102  U.  S.  16;  Swift  v.  Smith,  102  U. 
8.  442;  Brush  v.  Scribner,  11  Conn. 
387;  Capen's  App.  28  Ib.  220;  Beadle 
e.  Southern  Bank,  57  Ga.  274;  Mur- 
ray v.  Beckw.ith,  81  111.  43:  Morris 
c.  Preston,  93  Ib.  215;  Paulette  v. 
Brown,  40  Mo.  52;  Ringling  v.  Kolin, 
4  Mo.  App.  59;  Greenwell  v.  Hay- 
den,  78  Ky.  322;  Gardner  v.  Gager,  1 
Allen,  502;  Fisher*.  Fisher,  98  Mass. 
303;  Draper  v.  Sexton,  118  Ib.  429; 
Clement  v.  Leveritt,  12  N.  H.  317; 
Stalker  t>.  McDonald,  6  Hill,  93; 
Stettheimer  v.  Meyer,  83  Barb.  215; 
Youngs  t>.  Lee,  12  N.  Y.  551 ;  Boyd  v. 
Cummings,  17  Ib.  101;  Spencer  v. 
Ballou,  18  Ib.  327;  Bank  of  New 


York*.  Vanderhorst,  32  Ib.  553; 
Belmont  v.  Hoge,  35  Ib.  65;  Farwell 
t>.  Importers  Bank,  90  N.  Y.  384,  s. 
c.  47  N.  Y.  Supr.  Ct.  409;  First  Nat. 
Bank  v.  Fowler,  36  Ohio  St.  524; 
Nichol  v.  Bates,  10  Yerg.  429;  Ban- 
croft  v.  McKnight,  11  Rich.  63;  Bel- 
den  v.  Manley,  21  Vt.  551;  Good- 
win v.  Roberts,  L.  R.  10  Ex.  76,  337, 
s.c.  1  App.  476;  Anon,  1  Salk.  126, 
cas.  5;  Solomons  v.  Bank  of  England, 
13  East,  135,  n.  a;  Collins  ». Martin, 
1  B.  &  P.  648;  Miller®.  Race,  1  Burr, 
452:  Gorgier  ».  Meville,  3  B.  &  C. 
45;  Palmer  v.  Richards,  15  Jur.  41; 
Marston*.  Allen,  8  M.  &  W.  494; 
Lloyd  v.  Howard,  20  L.  J.  Q.  B.  1 ; 
Ashurst  v.  Bank,  37  E.  L.  &  E.  195. 
•  Hotchkiss  v.  National  Bank,  21 
Wall.  354;  Greunwall  v.  Hayden,  78 
Ky.  322;  Raphael  v.  Bank  of  Eng- 
land, 17  C.  B.  161. 


MISAPPROPRIATION  IN  PLEDGE.  89 

§  66.  MISAPPROPRIATION  OF  BLANK  ACCEPTANCES 
AND  ACCOMMODATION  PAPER. — A  holder  for  value  of  bills 
of  exchange,  before  maturity,  without  notice  of  equities,  in 
the  usual  course  of  business,  is  protected,  although  the  act  of 
pledge  be  a  fraud  and  misappropriation  of  such  paper  by  a 
person  who  has  been  entrusted,  with  mistaken  confidence, 
with  a  blank  acceptance.  The  rule  of  estoppel  in  pais  is 
applied  in  favor  of  the  pledgee  that  where  a  man  signs  his 
name  to  a  blank  piece  of  paper,  and  delivers  it  to  another  to 
be  negotiated,  the  latter  has  the  right  to  fill  it  up,  treating 
the  signature  as  that  of  an  acceptor,  and  if  the  bill  thus 
completed  is  indorsed  to  a  holder  for  value,  without  notice, 
the  latter  is  entitled  to  recover  upon  it  as  against  the  person 
who  has  thus  signed  his  name,  although  the  man  to  whom 
it  was  originally  given  may  have  defrauded  him.1  In 
England,  where  varying  stamp  duties  are  imposed  upon 
such  paper,  a  stamp  must  be  affixed  to  make  the  document 
a  valid  instrument,  and  the  amount  which  is  filled  in  is 
governed  by  the  stamp  so  affixed.8  The  power  in  this 
country  is  to  insert  an  indefinite  sum.  Such  sum,  so  in- 


1  Johnston  Harv.  Co.  •».  McLean,  &  C.  468;  Foster  v.  Mackinnon,  L. 

57  Wis.  258  (15  Rep.  799);   Violett  R.,  4  C.  P.  712;  L  &  S.  W.  Bank  v. 

v.  Patton,  5  Cranch,  142;  Goodman  Wentworth,  L.  R.  5  Ex.  D.  96. 
c.  Simonds,  20  How.  361;  Bank  of          9  A  owing  a  debt  of  £50  to  B 

Pittsburgh  D.  Neal,  22  Ib.  96 ;  Joseph  writes  to  him    enclosing    a    blank 

«.   National    Bank,    17    Kan.    256;  paper  with  a  stamp  sufficient  to  cov- 

Snyder  v.  Vandoren,  46  Wis.  602 ;  er  a  bill  for  £100.  saying    "  I  don't 

Bank  v.  Spence,  9  Ala.  800;    Van  know  the  exact  amount  of  my  debt, 

Duzer v  Howe.  21  N.  Y.  501;   Day  but  fill  up    the    enclosed    for    the 

v.  Sauuders,  42  Ib.    347;    Bank  of  amount,  and  I  will  honor  it  at  three 

Chemung  v.    Braclner,  44  Ib.    680;  months."    Bin  fraud  of  A  draws  a 

Fullerton  V.  Sturges,  4  Ohio  St.  529;  bill  for  £75,  indorses  it,  and  it  comes 

Fni/.ier   v.    Gaines,    58    Tenn.    93;  into  the  hands  of  a  bona  fide  holder 

Johnson  v.  Blasdell,  1  S.  &  M.  17;  for  value.    A  is  liable,  notwithstand- 

Kussell  v.  Langstaffe,    2  Doug.   514  ing  the  fraud,  and  absence  of  au- 

( decided    in    1780)  ;      Peacock     v.  thority  of  B.      Baron   Pollock,   in 

Rhodes,  Ib.  633;  Collis  v.  Emett,  1  London  &  S.  W.   Bank  v.   Weut- 

K.B1.313;  Schultz  a.Astley,  2  Bing.  worth,  L.  R.  5  Ex.  D.  96. 
N.  C.  544;  Cooper  v.  Meyer,  10  B. 


90  NEGOTIABLE  COLLATERAL  SECURITIES. 

serted,    as    to  holders    for  value    without   notice,   is  con- 
clusive as  against  the  acceptor.1 

The  title  of  a  holder  for  value  of  an  accommodation  bill 
of  exchange  or  promissory  note,  payable  to  bearer  or  in- 
dorsed in  blank,  receiving  the  same  as  collateral  security  for 
advances,  is  not  affected  by  the  fact  that  the  party  from 
whom  it  was  received  before  maturity,  committed  an 
act  of  misappropriation  thereby,  having  received  the  paper 
for  other  purposes.  The  presumption  is,  that  the  holder 
gave  value  for  it,  that  being  the  object  for  which  such  ac- 
commodation paper  is  issued.*  In  such  cases  of  misappro- 
priation the  pledgee,  who  has  advanced  value  thereon,  in 
good  faith,  before  maturity,  without  notice  of  equities,  is 
enlitled  to  recover  the  full  face  value  thereof  as  against  the 
accommodating  maker,  if  less  than  the  debt  incurred,  or  to 
the  amount  of  his  advances  where  they  are  less  than  the 
value  of  the  collateral  securities.8  The  like  rule  applies  to 
the  holder  of  accommodation  paper  for  value  before  ma- 
turity, without  notice,  receiving  the  same  from  a  pledgee 
thereof,  although  as  between  the  maker  of  the  note  and  the 
payee  and  pledgee  there  may  be  a  complete  defense.4 

§67.  OR  WHERE  PLEDQOR  HAS  TEMPORARY  POSSES- 
SION OP  COLLATERAL  SECURITIES. — The  title  of  a  pledgee 
for  value  of  collateral  securities,  receiving  the  same  properly 

1  Violett   v.  Patton,   5    Cr.   142;  rison  Wire  Co.,  11  Mo.  App.  440; 

Goodman  v.  Simonds,  20  How.  36;  Stoddard  v.  Kimball,  0  Cush.  469; 

Bank  of  Pittsburgh  v.  Neal,  22  How.  Fisher  v.  Fisher,  98  Mass.  803;  Mait- 

96;  Decatur  Bank  v.  Spence,  9  Ala.  land  v.  Bank,  40  Md.  540;  Williams 

800;  Fullerton®.  Sturges,  4  Ohio  St.  v.  Smith,  2  Hill,   301;    Watson   ». 

529;  Van  Duzer  v.  Howe,  21  N.  Y.  Cabot,  Bank,  5  Sandf.  423  ;   Case  «. 

531;  Day  v.  Saunders,  42  Ib.  347.  Mechanics'  Banking  Assn.  4  N.  Y. 

»  Collins  v.  Gilbert,  94  U.  8.  753;  166  ;    But    not    where    wrongfully 

Seybel  ®.  Bank,  54  N.  Y.  291;  Perci-  pledged    for   an    antecedent    debt, 

val  v.  Frampton,  2  Cr.  M.  &  R.  183.  Rogers  v.  Keystone  Nat.  Bank,  83 

»  Jackson  «.  First  Nat.  Bank,  42  Pa.  St.  248. 

N.  J.  L.  177;  Duncan®.  Gilbert,  29  «Cook  t>.  Norwood,  106  111.  558; 

Ib.  521;  American  Nat.  Bauk®.  Har-  Oilman  v.  R.  R.  Co  72  Ala.  566. 


MISAPPEOPRIATION   IN  PLEDGE.  91 

indorsed,  so  as  to  take  full  title  thereto,  is  protected  where 
the  pledger,  having  temporary  possession  of  such  securities, 
converts  the  same  to  his  own  use,  the  other  person  being 
chargeable  with  knowledge  of  the  indorsement  thereon. 
The  payee  of  a  promissory  note,  upon  obtaining  an  advance, 
indorsed  the  note  to  the  pledgee  by  name,  as  collateral 
security.  Upon  repaying  a  part  of  the  loan,  the  pledger 
was  allowed  to  take  temporarily  the  collateral  note,  think- 
ing he  could  make  a  beneficial  sale  of  it,  upon  an  agreement 
that  it  should  be  returned  and  indorsed  by  the  pledgee  upon 
paj'ment  of  the  balance  of  his  advance.  The  pledger  imme- 
diately negotiated  the  note  to  a  third  person,  to  whom  pay- 
ment of  the  full  face  thereof,  upon  its  surrender,  was  made 
by  the  makers.  The  pledgee  sued  the  makers,  setting  up 
the  restricted  indorsement  to  himself,  but  the  note  was  not 
produced.  The  makers  and  purchaser  were  held  chargeable 
with  knowledge  of  the  rights  of  the  pledgee  to  the  note, 
although  the  purchaser  could  not  read,  while  no  estoppel 
arose,  as  against  the  pledgee,  from  the  delivery  for  such 
a  purpose  of  a  note  specially  indorsed.  The  failure  to  pro- 
duce the  note  upon  trial  created  of  itself  a  presumption  that 
the  indorsement  remained  uncanceled  at  the  time  of  pay- 
ment by  the  makers.1 

§68.  THE  PLEDGE  OF  FORGED  COLLATERAL  SECUR- 
ITIES, AND  ILLEGAL  PLEDGES. — A  claim  founded  on  nego- 
tiable securities  arising  directly  out  of  a  forgery  by  one  of 
the  parties  thereto,  is  not  supported.9  Where,  however, 
the  action  is  to  recover  on  collateral  securities,  which  are 
independent  of  and  not  tainted  with  forgery,  although  the 
felonious  act  has  entered  into  other  parts  of  the  transaction, 
the  pledgee  is  entitled  to  recover.  Bills  of  exchange, 
pledged  to  bankers  to  secure  over-drafts,  were  discovered  to 

1  Pier  v.  Bullis,  48  Wis.  429.  "Wells  v.  Abrahams,  L.  R.  7  Q.  B. 

*  Crosby  «.   Long,    12  East,   409;  554;  "Wellock  v.  Constantino,  2  H. 

Wallace  v.  Havdacre,  1  Campb.  45;  &  C.  146. 
ex  parte  Ball,  L.  R.  10  Ch.  D.   667; 


92  NEGOTIABLE  COLLATERAL   SECURITIES. 

be  forgeries,  and  other  genuine  promissory  notes  of  the  guilty 
parties  were  given  as  collateral  security  for  the  same  over- 
drafts upon  a  surrender  of  the  forged  bills.  The  pledgee 
was  allowed  to  avail  himself  of  the  last  securities,  the  agree- 
ment upon  which  they  were  received  being  a  contract  inde- 
pendent of  the  felony.1  Where  a  bill  of  exchange  Avas 
accepted  in  blank  for  the  purpose  of  being  negotiated  (the 
blank  acceptance  being  given  on  account  of  a  loan)  and  was 
afterwards  filled  in  Avith  the  name  and  signature  of  a  person 
as  drawer  and  indorser,  the  acceptor  was  not  allowed,  as 
against  a  bona  fide  indorsee  for  value,  the  bill  having  been 
deposited  at  a  bankers  who  made  an  advance  thereon  equal 
to  the  full  value  of  the  bill,  to  introduce  evidence  to  shoAV 
that  either  the  drawing  or  indorsement  was  a  forgery,  the 
forgery  forming  no  part  of  the  transaction  by  which  the 
bank  acquired  the  bill.* 

The  rights  of  the  innocent  indorsee  of  negotiable  instru- 
ments as  collateral  security  for  debts  of  the  transferror, 
receiving  the  same  without  notice  of  his  want  of  authority 
to  transfer,  and  in  the  usual  course  of  business,  is  supported 
as  against  the  rightful  owner,  even  in  states  where  the 
pledge  or  transfer,  in  any  way,  of  collateral  securities  by  the 
pledgee  before  the  debt  is  due  and  payable,  Avithout  the 
authority  of  the  real  owner,  is  made  a  statutory  offense. 
Such  assignment  has  been  sustained  in  Massachusetts."  Nor 
was  the  pledgee  put  upon  inquiry  as  to  their  title,  by  the 
fact  that  the  pledgors  informed  the  pledgee  that  they  Avould 
probably  want  to  substitute  other  collaterals  for  the  note 
before  its  maturity.4  A  later  case  in  the  same  state  is  to 
the  like  effect.' 

§69.  PLEDGES  OF  MISAPPROPRIATED,  LOST  OR  STOLEN 
SECURITIES,  AFTER  MATURITY.  —  The  pledgee,  receiving 

1  Ex  parte  Leslie,  L.  R.  20  Cli.  D.  »Gcn.  Stats.  Mass.  C.  101,  gG4; 

181;  Murray  «.  Lardner,  2  Wall.  Pub.  Stats.  Mass.  1882,  pt.  4.  tit.  1, 

121.  ch.  203,  §72. 

1  London  etc.  Bank  v.  Wentworth,  *  Gardner  v.  Gager,  1  Allen,  502. 

L.  li.  5  Ex.  D.  96.  •  Draper  «.  Saxton,  118  Mass.  437. 


MISAPPROPRIATION   IN   PLEDGE.  93 

negotiable  instruments  as  collateral  security,  after  due, 
although  for  a  valuable  consideration,  is  subject  to  the  ante- 
cedent equities  and  defenses  in  common  with  other  holders 
of  dishonored  paper.1  The  rule  applies  in  cases  where  such 
negotiable  paper  is  pledged  after  its  maturity  by  a  person 
who  is  not  its  owner,  nor  authorized  to  pledge,  but  misap- 
propriates the  same.  The  pledgee  in  such  cases  acquires  no 
title  or  right  to  such  collaterals  as  against  the  defrauded 
owner.*  Nor  will  the  doctrine  of  estoppel,  founded  upon 
the  acknowledged  equitable  rule  that  where  one  of  two 
innocent  purchasers  must  suffer,  the  loss  should  fall  upon  the 
one  who  has  enabled  the  third  person  to  commit  the  fraud, 
be  applied  for  the  relief  of  the  pledgee  in  cases  where  the 
possession  given  by  the  owner  to  the  pledger  is  for  the  legit- 
imate purpose  of  making  collection  of  the  collaterals,  and 
with  no  power  to  pledge,  or  in  other  like  cases.  A  pledge 
made  under  such  circumstances  after  the  maturity  of  the 
paper,  vests  in  the  pledgee  no  greater  rights  than  those  of 
the  pledger  himself.* 

The  rule  that  the  pledgee  of  negotiable  securities,  receiv- 
ing them  after  maturity,  is  subject  to  antecedent  equities,  is 
applied  where  such  securities  have  been  lost  by  the  owner, 
or  stolen  from  him.  Where  negotiable  coupons  were  stolen 
from  the  owner  before  their  maturity,  and  passed  by  several 
transfers  into  the  hands  of  the  defendant  in  good  faith,  for 
value,  no  presumption  arising  that  the  thief  had  negotiated 
the  coupons  before  maturity,  the  defendant  was  therefore 
subject  to  all  antecedent  rights,  aud  to  all  defenses  of  the 


1  Murray  v.  Lardner,  2  Wall.  118;  ler  v.  Brantley,  14  Pet.  318;  Andrews 

Foley  v.  Smith,  6  Ib.  493;  Texas  v.  v.  Pound,  13  Ib.  65;  Henderson  v. 

White,  7  Ib.  735;  Arents  v.  Com-  Case,  31  La.  Ann.  215;  Davis  v. 

monwealth,  18  Gratt.  750  ;  Aslmrst  Bradley,  26  Ib.  555 ;  Stern  v.  Ger- 

v.  Bank,  37  E.  L.  &  E.  195.  mania  Bank,  34  La.  Ann.  1119. 

'Parsons  v.  Jackson,  99  U.  S.  *  Foley  v.  Smith,  6  Wall.  493; 

440;  Vermilye  v.  Adams,  21  Wall.  Bird  v.  Cockrem,  28  La.  Ann.  70; 

143;  Texas  v.  White,  7  Ib.  700;  Tex-  Stern  v.  Germania  Bank,  34  La.  Ann. 

as  v.  Hardenbergh,  10  Ib.  90;  Fow-  1119. 


94  NEGOTIABLE  COLLATERAL  SECURITIES. 

promisor.1  The  like  rule  was  applied  in  a  case  where  a 
negotiable  coupon  bond  was  pledged  by  a  third  person,  who 
had  obtained  possession  of  the  same  by  a  felonious  act,  the 
bond  at  the  time  of  the  pledge  being  over-due  five  years, 
although  continued  payments  of  interest  had  been  made 
thereon.* 

But  where  bills  of  exchange  were  received  by  a  creditor 
from  his  debtor  as  collateral  security  for  the  payment  of  a 
debt  which  had  been  contracted  under  circumstances  which 
might  render  the  debtor  liable  to  a  criminal  proceeding,  it 
was  not  enough  to  show  in  defense  of  an  action  on  the  col- 
laterals, that  the  creditor  was  thereby  induced  to  abstain 
from  prosecuting  the  maker.8  Equity  will  not  aid  either 
party  where  the  consideration  is  illegal.4 

§70.  MISAPPROPRIATION  OF  NEGOTIABLE  SECURITIES 
BY  AGENTS. — The  innocent  indorsee  of  negotiable  instru- 
ments as  collateral  security,  for  a  valuable  advance,  before 
maturity  and  without  notice,  although  the  act  of  pledge  be 
a  misappropriation  by  an  agent  intrusted  with  possession 
and  the  apparent  absolute  ownership  thereof,  is  protected,  as 
a  holder  for  value,  in  the  usual  course  of  business.8  In  a  case 
where  negotiable  instruments  were  fraudulently  misappro- 
priated as  collateral  security  by  an  agent,  for  a  bona  fide  ad- 
vance to  himself,  the  United  States  Supreme  Court  say: 
"  Although  the  pledgee  took  the  note  only  as  collateral  se- 
curity, he  is  entitled  to  the  protection  of  a  purchaser  for 
value,  without  notice  of  anything  to  impeach  his  right. 


1  Hinckley    t>.     Merchants'  .Nat.  35  N.  T.  65;  Clement  v.  Leverett,  12 

Bank,  131  Mass.  147.  N.  H.  317;  Murray  v.  Beckwith,  81 

*  Greenwall  v.  Hayden,  78  Ky.332.  111.  43;  Chicopee  Bank  v.  Chapin,  8 
»  Flower  «.  Sadler,  L.  R.  9  Q.B.D.  Met.  40;  First  Nat.  Bank  v.  Fowler, 

83 ;  Ward  c.Floyd,  7  Scott  (N.S.) 499.  36  Ohio  St.  524;    Goodman  v.  Si- 

*  Taylor  t>.  Chester,  L.  R.,  4  Q.  B.  monds,  20  How.  843;  Swift  v.  Smith, 
809.  102  U.  S.  442;  Stone  r>.  Brown,  54 

*  Railroad  Co.  v.  National  Eank,  Tex.  830.    See  Wickhatn  t>.  More- 
102  U.  S.  16 ;  Belmont  Bank  v.  Hoge,  house,  16  Fed.  Rep.  324. 


MISAPPROPRIATION  IN   PLEDGE.  95 

Conceding  that  the  agent  was  not  in  fact  the  owner  of  the 
note  when  he  transferred  it,  and  that  in  transferring  it,  he 
perpetrated  a  fraud  upon  the  true  owner,  it  is  still  certain 
that  he  was  clothed  with  power  to  make  the  transfer,  and 
though  its  exercise  was  a  fraud,  if  the  pledgee  advanced  his 
money  in  good  faith  relying  upon  the  apparent  ownership, 
the  true  owner  thereby  lost  his  title.  He  was  bound  by  the 
act  of  his  agent  or  attorney."1  The  pledgee,  as  a  holder 
for  value,  is  entitled  to  recover  the  full  amount  of  such  mis- 
appropriated securities  from  the  parties  liable  thereon,*  but 
where  the  suit  is  against  the  defrauded  party,  and  the  debt 
secured  is  less  than  the  face  of  the  note,  and  the  pledgee  is  not 
responsible  over  to  any  third  person  for  any  surplus  remain- 
ing in  his  hands  after  the  payment  of  his  debt,  his  recovery 
is  limited  to  the  amount  of  his  claim,  or  to  so  much  thereof 
as  remains  unpaid.* 

The  leading  English  case  of  Goodwin  v.  Roberts4  fully 
supports  the  rights  of  the  pledgee  for  value  of  negotiable 
securities,  when  taken  in  good  faith,  without  notice  of 
equities,  although  the  act  of  pledge  is  a  misappropriation 
thereof  by  an  agent.  The  negotiable  securities  in  that  case 
were  left  with  a  stock-broker,  as  agent  of  the  owner,  to  be 
disposed  of  as  the  owner  might  direct,  but  the  agent  wrong- 
fully pledged  the  same,  with  other  negotiable  instruments, 
as  collateral  security  for  an  advance  from  a  bank,  and  after- 
wards became  bankrupt.  The  bank  sold  the  collaterals  on 
the  stock  exchange,  according  to  the  usual  custom,  applying 
the  proceeds  to  the  payment  of  the  debt,  having  no  notice 
of  the  claims  of  the  owner  during  the  whole  transaction. 

1  Swift  v.  Smith,  102  U.  S.  442.  The  the  note  from  the  defrauded  mak- 

same  rule  was  enforced  in  Railroad  er. 

Co.  v.  Nat.  Bank,  102  U.  S.  14,  where  *  Stoddard  v.  Kimball,  6  Cush.  469; 

a  broker,  entrusted  with  negotiable  Chicopee  Bank  v.  Chapin,  8  Met.  40; 

notes,  indorsed  in  blank,  for  sale,  Swift  v.  Smith,  supra;    Watson  v. 

fraudulently  pledged  them  for  his  Russell,  3  B.  &.  S.  34,  40. 

own  antecedent  debt.    The  pledgee,  8  Chicopee  Bank  v.  Chapin,  supra, 

receiving  them  without  notice,  was  4  L.  R.  10  Ex.  76;  s.  c.  Ib.  339;  on 

allowed  to  collect  the  whole  face  of  app.  L.  R.  1  App.  476. 


90  NEGOTIABLE  COLLATERAL  SECURITIES. 

The  delivery  of  a  government  bond  payable  to  bearer,  by  an 
agent,  as  collateral  security  for  his  own  debt,  notwithstand- 
ing he  held  the  same  simply  to  collect  interest  thereon,  the 
pledgee  receiving  the  same  in  good  faith,  without  notice, 
was  sustained  as  against  an  action  of  trover  by  the  owner.1 

§71.  WRONGFUL  PLEDGE  BY  AGENT,  FOR  ANTECED- 
ENT DEBT. — In  states,  including  New  York  and  Pennsyl- 
vania, where  the  rule  prevails  that  the  indorsee  of  negotia- 
ble instruments,  receiving  the  same,  as  collateral  security  for 
an  antecedent  debt,  without  further  consideration's  not  a 
holder  for  value,  in  the  usual  course  of  business,  the  pledgee, 
so  receiving  such  securities  from  an  agent,  where  the  act  is 
one  of  misappropriation,  although  without  knowledge 
thereof,  is  not  entitled  to  recover.  The  question  of  misap- 
propriation by  agents  arose  in  the  leading  cases  of  Codding- 
ton  v.  Bay*  and  Stalker  v.  McDonald*  and  other  cases  in 
New  York  follow  the  ruling  in  those  cases.4  The  like  rule 
was  enforced  in  Pennsylvania.* 

§72.  THE  RULE  AS  APPLIED  TO  BANKERS. — Protec- 
tion is  also  afforded  the  bona  fide  pledgee  of  negotiable 
securities  in  cases  where  the  wrongful  misappropriation 
thereof  is  the  act  of  bankers  or  banking  corporations,  hold- 
ing such  negotiable  instruments  with  full  title.  Where,  by 
reason  of  misplaced  confidence,  a  banker  is  entrusted  with 
possession  of  such  evidences  of  title  as  negotiable  promissory 
notes,  indorsed  in  blank,  although  the  purpose  simply  be 
that  he  may  collect  accruing  interest  thereon,  and  the 
banker  deposits  the  notes,  with  other  securities,  with  his 
correspondents,  as  collateral  security  for  present  indebted- 
ness and  for  future  advances,  the  real  owner  is  not  allowed, 

1  Gorgier  e.Mieville,  8  B.  &  C.  45.  •  Pctrie  v.  Clark,   11  S.  &  R  879; 

•  5  Johns.  54;  a.  c.  20  Ib.  637.  Royer  v.  Keystone  National  Bank,  83 

•  6  Hill,  98.  Pa.  St.  248. 
4  Scott  v.  BetU,   Hill  &  D.  868; 

Francia  v.  Joseph,  3  Edw.  Ch.  182. 


MISAPPROPRIATION  IN  PLEDGE.  97 

in  an  action  of  replevin,  brought  after  the  country  banker 
has  become  insolvent,  to  recover  possession  of  the  notes  so 
pledged  from  the  indorsee  holding  them  in  good  faith,  for 
value  in  the  usual  course  of  business,  as  collateral  security.1 
A  banker,  with  whom  negotiable  bills  have  been  deposited, 
making  an  indorsement  thereof  as  collateral  security  for  a 
loan  to  himself,  the  property  in  such  bills,  to  the  extent  at 
least  of  the  advances,  passes  to  the  bona  fide  indorsee  as 
against  the  real  owner.*  And  a  pledge  of  such  negotiable 
paper,  entrusted  to  a  bank  director  as  an  individual,  for  the 
purpose  of  getting  the  same  discounted  for  the  benefit  of 
the  owner,  to  the  bank  of  which  he  is  a  director,  for  his  own 
past  debt  and  a  present  advance,  was  supported  as  against 
the  real  owner,  the  bank  not  being  chargeable  with  notice 
of  the  real  transaction,  as  the  director  was  not  acting  in  his 
official  capacity  in  obtaining  the  loan.8 

The  pledge  of  negotiable  instruments  by  a  bank,  holding 
them  on  deposit  for  safe  keeping,  for  the  purpose  of  secur- 
ing the  re-payment  of  a  loan  to  itself,  vests  in  the  pledgees  a 
title  thereto  good  as  against  all  the  world,  to  hold  and  dis- 
pose of  them  according  to  the  terms  of  the  contract  of 
pledge.  Such  title  can  not  be  divested  by  a  "dishonest 
trick,"  nor  by  the  fact  that  the  pledger  recovered  possession 
by  an  act  of  gross  fraud  or  violence.4  And  where  the  man- 
aging cashier  of  a  bank  has  been  authorized  by  the  directors 
thereof  to  transfer  to  another  bank  as  collateral  securitv  for 


1  Morris  v.  Preston,  93  111.  215.  There  was  an  understanding  that  the 
9  Collins  «.  Martin,  1  B.  &  P.  648;  notes   of   the  partners  were  to  be 
Treuttell  v.  Barandon,  8  Taunt.  100.  paid  through  the  deposit  account  of 
8  Washington  Bank  v.  Lewis,  22  the' firm.     The  banker  became  bank- 
Pick.  24.    In  Bank  «.  Hemingray,  34  rupt.     After  satisfying  the  debt  for 
Ohio  St.  381,  a  banker  induced  a  firm  which  the  notes  of  the  individual 
to  continue  its  deposit  by  positively  members  were  held  as  security,  the 
holding  himself  out  as  still  the  holder  latter,   as  against    the    assignee    in 
of    several   negotiable  notes    made  bankruptcy,  was  entitled  in  equity 
to  him  by  the  principal  members  of  to  set  off  the  firm  account  against 
the  firm, when  in  fact  he  had  assigned  the  balance  on  the  notes. 
them  as  collateral  security  for  a  debt.          4  Riugling  v.  Kohn,  4  Mo.  App.  59. 
7 


98  NEGOTIABLE  COLLATERAL  SECURITIES. 

a  loan,  notes  and  bills  discounted  by  the  borrowing  bank, 
and  a  loan  was  made  in  good  faith,  the  right  of  the  pledgee 
to  recover  was  net  affected  by  the  fact  that  the  cashier  of 
the  borrowing  bank  gave  a  note,  signed  by  himself  indi- 
vidually, and  paj-able  to  himself  as  cashier,  for  the  amount  of 
the  loan,  if  in  fact  the  application  was  for  a  loan  to  his 
bank,  and  on  its  credit,  and  the  loan  was  in  good  faith  so 
made.  The  fact  that  the  cashier  misapplied  the  money  to 
his  own  private  purposes  was  held  not  to  affect  the  validity 
of  the  contract,  nor  to  prevent  the  pledgee  from  collecting 
the  securities,  and  retaining  enough  to  repay  its  advances.1 

§  73.  THE  RULE  AS  APPLIED  TO  EXECUTORS  AND 
ADMINISTRATORS. — Generally,  an  executor  may  dispose  of 
the  personal  estate,  including  negotiable  securities,  of  the 
testator  by  sale  or  pledge,  in  connection  with  the  manage- 
ment of  the  estate,  and  even  where  the  sale  or  pledge  of 
such  securities  is  made  for  other  purposes,  of  which  the 
person  advancing  money  has  no  knowledge  or  notice,  but 
receives  the  same,  in  good  faith,  for  value,  the  transaction 
is  sustained,  for  the  pledgee  is  not  bound  to  see  to  the  dis- 
position of  the  loan.*  The  rule  is  otherwise  where  the 
pledgee  is  chargeable  with  knowledge  that  such  disposition 
of  the  assets  of  the  estate,  is  a  perversion,  or  that 
the  proceeds  are  to  be  used  for  purposes  other  than 
the  benefit  thereof.  Property  thus  acquired  from  an  ex- 
ecutor may  be  followed  and  recovered.8  The  pledgee  will 

1  City  Bank  v.  Perkins,  4  Bosw.  420.  v.  Ayer,  supra ;  Walker  v.  Taylor,  4 

•  Smith  v.  Ayer,  102  U.  S.  320.  L.  T.  N.  8.  845;   Miller  t.  William- 

Russell  v.  Place,  18  Beav.  31.    The  son,  5  Md.  219.    The  rule  applied 

rule  applied  to  trustees:    Loriug  ®.  to  trustees:    Ham  v.  Ham,  58  N.  H. 

Brodie,  134  Mass.  453;   Learned  ®.  177;    Shuey  v.  Latta,  90  Ind.  136; 

Tritch,  6  Col. 432;  White  «.  Fulton,  Holden   v.  Upton,  134  Mass.  177; 

68  Ga.  511;  Ex  parte  Williams,  18  Head  v.  Bridges,  67  Ga.  227;  Dodge 

S  C.  299.  v.  Meyer,  94  N.  Y.  309;   Sheetz  ». 

sColtw.Lasmer,9Cow.  320;  Field  Neagley,  13  Phila  506;  May  v.  Le 

«.  Schiefflein,  7  Johns.   Ch.  150;  Pe-  Claire,  11  Wall.  235 ;  Dows  v.  Beny, 

trie  t».  Clark,  11  S.  &  R  377;  Thorn-  18  Fed.  R.  121 ;  Mitchell  e.  Coburn, 

asson  v.  Brown,  43  lud.  203;   Smith  61  Md.  244. 


MISAPPROPRIATION  IN  PLEDGE.  99 

be  ordered  to  return  the  collateral  securities  thus  wrong- 
fully pledged  by  an  executor,  where  he  has  received  them 
with  knowledge  and  connivance.1  An  order  to  this  effect 
was  entered  by  Lord  Thurlow  in  a  case  where  bonds  had 
been  wrongfully  pledged  by  an  executrix  for  a  personal 
debt,  the  pledgee  having  notice  of  the  misappropriation. 
If  converted  into  cash,  the  pledgee  is  liable  for  the  full 
value  thereof,*  and  money  loaned  by  one  executor  to  the 
other,  upon  his  individual  note,  upon  representations  that 
it  is  to  be  used  in  paying  the  debts  of  the  estate,  but  is  not 
so  used,  is  not  a  proper  charge  against  the  estate.*  Where 
an  administrator  improperly  pledged  negotiable  notes  of  the 
estate,  and  the  notes  or  their  proceeds  passed  into  the  hands 
of  one  chargeable  with  knowledge  of  the  true  ownership 
thereof,  no  estoppel  arose  to  prevent  such  administrator 
from  recovering  such  notes  or  their  proceeds  from  such  per- 
sons.4 

§  74.  AND  TO  DIRECTORS  OP  CORPORATIONS. — The 
pledge  of  bonds  or  other  securities  of  a  corporation  by  the 
officers  thereof  to  themselves,  or  to  some  of  their  number,  is 
required  to  be  made  in  good  faith,  the  tendency  being  to 
scrutinize  such  transactions  closely  and  rigorously.  Where 
a  pledge  of  such  bonds  is  made  by  the  officers  and  direc- 
tors of  a  railroad  company  to  each  other  to  secure  an  in- 
debtedness of  less  than  four  per  cent,  of  the  face  of  the 
bonds,  the  transaction  on  its  face  is  nothing  less  than  an 
actual  fraud  upon  the  corporation  and  its  stockholders.8 
But  there  is  no  reason  why  a  director,  or  officer  of  a  corpora- 
tion, may  not  receive  the  negotiable  bonds  or  other  securi- 
ties thereof  as  collateral  security,  where  a  debt  is  honestly 
due  him,  or  he  has  incurred  a  liability,  or  advanced  money 
thereon.  Notwithstanding  the  trust  relations  existing  be- 


1  Smith  t>.  Ayer,  102  U.  S.  320.  *  State  v.  Berning,  74  Mo.  87. 

9  Scott  0.  Tyler,  2  Dick.  724.  •  Cbouteau  *.  Allen,  70  Mo.  290, 

»  Croft  v.  Williams,  88  N.  Y.  384.        336;  Wilbur  v.  Lynde,  49  C&L  290 


100  NEGOTIABLE   COLLATERAL  SECURITIES. 

t\veen  such  officials  and  the  company,  a  pledgee,  so  receiving 
collateral  security  from  a  company  of  which  he  is  an 
officer,  is  entitled  to  hold  the  same  until  payment  of  the 
loans.1 


§  75.  WHAT  NOTICE  OF  DEFECTS,  ETC.,  WILL  DEFEAT 
THE  TITLE  OF  THE  PLEDGEE. — The  knowledge  or  degree  of 
negligence,  on  the  part  of  one  claiming  to  be  a  bona  fide 
pledgee  of  negotiable  paper,  of  defects  in  the  same,  or  of  the 
misappropriation  thereof,  or  of  the  pledger's  want  of  title 
thereto,  sufficient  to  defeat  the  claims  of  such  pledgee, 
must  be  something  more  than  a  mere  suspicion  of  defect  of 
title,  or  a  knowledge  of  circumstances  which  would  excite  sus- 
picion in  the  mind  of  a  prudent  man,  or  even  gross  negligence. 
Bad  faith  or  fraud  are  the  only  grounds  upon  which  the 
title  of  the  pledgee  can  be  overthrown.  The  burden  of 
proof  lies  on  the  person  who  assails  the  right  claimed  by 
the  party  in  possession.*  Every  one  must  conduct  himself 
honestly  in  respect  to  the  antecedent  parties,  when  he  takes 
negotiable  paper,  in  order  to  acquire  a  title,  which 
will  shield  him  against  prior  equities.  Although  not 
obliged  to  make  inquiries,  the  pledgee  must  not  wilfully 
avoid  the  means  of  knowledge  which  he  knows  are  available, 


1  Buncombe  t>.  Railroad  Co.,  84  N.  Dorchester  Bank,  10  Gush  491 ;  Ash- 

Y.  190;  s.  c.  88  Ib  1;  Twinlick  Oil  ton  v.  Taylor.  3  Allen  217;  Sturlevant 

Co.  v.  Marburg,  91  U.  S.  587.  t>.  Jaques,  14  Ib.  523 ;  Spooner  v. 

»  Bank  of  Pittsburgh  t>.  Neal,  22  Holmes,  102  Mass.  503;  Nat.  Bank 
How.  96;  Calais  Steamboat  Co  ».  «.  Sa very,  127  Ib.  79;  Treuttelc.  Bar- 
Van  Pelt,  2  Black  377;  Murray  v.  andon,  8  Taunt.  100;  Sigourney  v. 
Lardner,  2  Wall.  100;  Hotchkiss  v.  Lloyd,  8  Barn.  &  C.  622;  B.  c.5  Bing. 
Nat.  Banks,  21  Ib.  354,  859;  Smith  525.  In  Murray  «.  Lardner,  2  Wall. 
».  Ayer,  101  U.  S.  820;  Swift  v. Smith,  121,  a  bona  fide  purchase  for  value 

102  Ib.  442;  Railroad  Co. «.  Sprague,  of  a  negotiable  bond,  in  the  usual 

103  U.  S.  756,   763;    Wickham   v.  course  of  business,  was  supported, 
Morehouse,  16  Fed.  Rep.  324;  Welch  although  the  bond  in  fact  had  been 
c.  Sage,  47  N.  Y.  143;  Miller  v.  Wil-  stolen  from  the  true  owner. 

liams,  5  Md.  219;  Worcester  Bank  v. 


MISAPPROPRIATION   IN  PLEDGE.  101 

since  such   conduct,  whether  equivalent  to  notice  or  not, 
would  be  plenary  evidence  of  bad  faith.1 

The  rule  was  announced  in  the  case  of  Gill  v.  Cubitt* 
that  the  title  of  a  holder  of  negotiable  securities,  although 
paying  full  value,  would  not  be  supported,  because  received 
under  circumstances  which  "  ought  to  have  excited  the 
suspicion  of  a  prudent  and  careful  man."  The  rule  was 
•questioned8  and  finally  overruled  in  Goodman  v.  Harvey.4 
In  New  York,  the  influence  of  Gill  v.  Cubitt  led  to  decisions 
that  where  a  negotiable  security  was  received  as  payment  of 
an  antecedent  debt,  without  notice  of  equities,  the  creditor 
was  not  a  holder  for  value,  in  the  usual  course  of  business  ;' 
and  that  if  a  party  in  good  faith  took  a  negotiable  security  of 
a  holder  without  due  inquiry,  or  with  knowledge  of  such 
facts  or  circumstances  as  would  put  a  prudent  man  upon 
inquiry  in  making  purchases  of  personal  property,  he  would 
not  acquire  a  good  title  to  the  instrument,  if  it  appeared 
that  equities  in  fact  existed  between  the  antecedent  parties, 
and  that  vigilant  inquiry  would  have  enabled  the  taker  to 


1  Goodman  v.  Simonds,   20  How.  Currency  Bank,   54   Ib.    288,   295; 

343,  346;  May  v.  Chapman,  16  M.  &  Welch  t>.  Sage,  47  N.  Y.  143;   Prin- 

W.  355.  gle  v.  Phillips,  5  Sandf.  157;   Good- 

*  3  B  &  C.  466.  man  v.  Simonds,  20  How.  343,  364  ; 

'  «  Crook  v.  Jadis,  3  B.  &  C.  456  ;  Bank  v.  Neal,  22  Ib.  96 ;  Murray  v. 

Backhouse  v.  Harrison,  5  B.  &  A.  Lardner,  2  Wall.  110 ;    op.  of  Mr. 

1098.  Justice    Clifford,     Railroad     Com- 

4  4  Ad.  &  E.  870.     Lord  Denman,  pany  t>.  Nat.  Bank,  102  U.  S.  14,  39, 

in  delivering  judgment,  said:    ''We  42;  Collins  v.  Gilbert,   94  Ib.  753; 

are  all  of  opinion  that  gross  negli-  Swift  v.  Smith,  102  U.  S.  442 ;  Uther 

gence  only  would  not  be  a  sufficient  v.  Rich,  10  Ad.  &  E.  784  ;    Stephens 

answer,  where  a    party  has  given  v.  Foster,  1  C.  M.  &  W.  849;  Arbouin 

consideration  for  a  bill ;  gross  negli-  v.  Anderson,  1  A.  &  E.  N.  S.  498  ; 

gence  maybe  evidence  of  mala  fides,  May  v.  Chapman,  16  M.  &  W.  355; 

but  it  is  not  the  same  thing.    Where  Raphael  v.  Bank,  17  C.  B.  161 ;  Bank 

the  bill  has  passed  to  the  plaintiff  v.  Leighton,  2  Ex.  61. 

without  any  proof  of  bad  faith  in  *  Bank  of  St.  Albans  ».  Gilliland, 

him,  there  is  no  objection  to  his  23  Wend.  311;   Small  v.   Smith,    1 

title."    Dut chess  Ins.  Co.  v.  Hach-  Denio,  583. 
field,  73  N.  Y.  226 ;   Seybel  v.  Nat. 


102 


NEGOTIABLE  COLLATERAL  SECURITIES. 


have  ascertained  the  true  character  of  those  equities,  but 
this  "legal  heresy"1  has  also  been  abandoned.9 

§76.  NOTICE  BY  THE  TERMS  OF  THE  COLLATERAL 
SECURITY. — Where  the  negotiable  instrument  offered  as  col- 
lateral speuriiy  for  an  advance  to  the  person  presenting  the 
same,  shows  upon  its  face  the  existence  of  a  trust,  or  that 
the 'person  offering  it  is  not  the  absolute  owner  thereof,  but 
holds  it  in  some  fiduciary  character,  or  that  it  belongs  to 
some  other  person,  the  pledgee  is  presumed  to  know  the 
true  owner,  and  is  thus  chargeable  with  knowledge,  and  can 
acquire  no  title  as  against  the  defrauded  cestuis  que  trust  or 
real  owner.  Holding  under  such  circumstances,  the  pledgee 
is  not  a  holder  for  value  in  good  faith,  in  the  usual  course  of 
business.  What  will  be  notice  sufficient  under  this  rule  to 
charge  the  pledgee  so  as  to  defeat  his  title,  is  a  question  of 
construction,  and  is  usually  determined  by  the  court  as  a 
matter  of  law.*  Every  person  is  presumed  to  know  the  con- 


1  Railroad  Co.  v.  Nat.  Bank,  102 
U.  S.  14,  41,  by  Mr.  Justice  Clifford. 

9  Pringle  «.  Pringle,  5  Sandf .  157 ; 
Welch  v.  Sage,  47  N.  Y.  143,  147; 
Seybel  ».  Nat.  Currency  Bank,  54  Ib. 
288,  295  ;  Dutchess  Ins.  Co.  «. 
Hachfield,  73  Ib.  226. 

*  Andrews  v.  Pond,  13  Pet.  65; 
Fowler  0.  Brantley,  14  Ib.  318;  Col- 
lins v.  Gilbert,  94  U.  S.  753,  758; 
Swift  v.  Smith.  102  U-  S.  442;  Good- 
man «.  Simonds,  20  How.  243; 
Brown  v.  Davis,  3  T.  R.  86;  Nat. 
Security  Bank  t>.  McDonald,  127 
Mass.  82;  Nat.  Bank  v.  Savery,  Ib. 
78;  In  Strong  v.  Jackson,  123  Mass. 
60,  63,  a  case  of  wrongful  misappro- 
priation of  negotiable  instruments 
as  collateral  security,  the  Court  say : 
"  Upon  an  examination  of  the  cases, 
it  will  be  found  that  it  is  very  rarely 
decided  that  any  one  fact  is  or  is  not 
conclusive  evidence  of  notice.  In- 
deed, in  the  nature  of  things,  it  can 


scarcely  happen  that  the  question  is 
to  be  decided  upon  an  isolated  fact. 
It  may  be  that  in  a  particular  case 
some  single  fact  in  and  of  itself  is 
sufficient,  but  generally  it  is  not  so. 
The  question  is  ordinarily  a  broader 
one ;  it  is  this :  Do  all  the  facts, 
taken  in  connection  with  the  subject 
matter,  with  the  situation  and  rela- 
tion of  the  parties,  their  means  of 
knowledge,  the  circumstances  which 
should  lead  to  inquiry,  together 
show  such  a  state  of  facts  that  it 
would  be  inequitable  for  subse- 
quently acquired  rights  to  supplant 
rights  previously  acquired?  In  this 
view,  a  fact,  which  under  some  cir- 
cumstances and  some  situations  and 
relations  of  the  parties  would  be  in- 
significant, in  other  relations  of  the 
parties  and  under  other  circum- 
stances would  be  decisive  ;  and  thus 
many  apparently  conflicting  deci- 
sions will  be  found  harmonious." 


MISAPPROPRIATION   IN   PLEDGE.  103 

tents  and  meaning  of  written  instruments,  and  the  construc- 
tion given  to  commercial  paper  at  the  time  of  its  transfer, 
and  of  the  order  of  the  names  upon  it.1  Pledgees  advancing 
upon  negotiable  instruments  showing  upon  their  face,  or  by 
indorsement,  that  they  are  already  held  as  collateral  security, 
as  where  an  indorsement  recited,  "  This  note  is  held  by  me 
for  note  signed  by  X,"  etc.,  are  chargeable  with  notice  as  to 
the  limited  interest  of  the  pledger.1  Where  bills  are  in- 
dorsed to  an  agent  of  the  owner  "  for  their  account,"  a 
pledgee  thereof  receiving  them  as  collateral  security  for 
past  and  future  advances  to^the  agent,  is  chargeable  with 
notice,  and  can  take  no  title  to  the  securities  as  against  the 
real  owner.8  The  words  "as  trustees,"  in  the  case  of  a 
pledge  of  securities  for  a  greater  sum  than  authorized,  is 
sufficient  to  put  the  pledgees  upon  inquiry  as  to  the  extent 
of  the  authority  of  the  pledger  when  asking  an  advance  for 
his  own  benefit.4 


§77.  CASES  WHERE  NOTICE  WAS  NOT  PRESUMED. — 
A  negotiable  promissory  note,  marked  upon  the  margin 
"  This  note  secured  by  trust  deed  of  even  date  herewith," 
was  received  as  collateral  security.  No  notice  of  any  claims 
of  third  parties  was  chargeable  to  the  pledgee  from  such  a 
notation.6  Promissorj'-  notes,  worded  "  I  promise  to  pay  to 
A.,  as  he  is  the  trustee  under  the  will  of  B.,  deceased,  or 
order,"  were  pledged  as  collateral  notes  to  secure  the  pay- 
ment of  a  personal  note  of  the  trustee,  discounted  by  a  bank, 
the  money  being  for  his  own  use,  the  bank  having  previously 
refused  to  discount  the  notes  afterwards  accepted  as  collat- 
eral security.  No  notice  was  charged  as  against  the  pledgee 
by  reason  of  the  wording  of  the  notes  that  the  trustee  was 


1  Swift    v.    Smith,     102    U.    S.  » Treuttel  «.  Barandon,  8  Taunt. 

442.  100. 

*  National  Security  Bank  v.  Me-  4  Swan  v.  Produce  Bank,  24  Hun, 

Donald,    127   Mass.    82;   National  277. 

Bank  v.  Savery,  Ib.  78.  6  Swift  t>.  Smith,  102  U.  S.  442. 


104  NEGOTIABLE    COLLATERAL   SECURITIES. 

acting  in  violation  of  his  duty.1  And  a  mere  indorsement 
of  a  note  as  "curator,"  is  not  sufficient  to  charge  a  pledgee 
advancing  money  in  good  faith  to  the  holder,  although  in 
fact  the  pledge  be  a  misappropriation.9  A  promissory 
note,  containing  the  words  "  I  promise  to  pay  to  the  order 
of  myself,"  and  executed  by  two  persons,  having  been 
handed  by  one  to  the  other,  who  misappropriated  the  same 
as  collateral  security  for  a  precedent  debt,  the  title  of  the 
pledgee  was  not  affected  by  any  notice  or  knowledge  pre- 
sumed from  the  fact  that  only  one  name  was  indorsed.8  If 
a  negotiable  instrument  indorsed  in  blank  is  placed  in  the 
hands  of  an  agent  for  safe-keeping,  and  the  agent  fraudu- 
lently appropriates  and  pledges  the  same  before  maturity, 
an  innocent  pledgee  advancing  money  on  such  paper,  with- 
out notice  of  equities,  is  a  holder  for  value,  and  protected, 
as  there  is  nothing  in  the  fact  of  the  pledge  of  such  securi- 
ties by  persons  having  an  absolute  title,  to  put  a  pledgee 
upon  inquiry.4 

§78.  RECOVERY  OF  THE  PLEDGEE  LIMITED  TO  AD- 
VANCE.— The  pledgee  of  negotiable  instruments  holding  the 
same  bona  fide  and  for  value,  is  entitled  to  recover  from  the 
parties  the  full  face  value  of  the  same,  holding  any  bal- 
ance, where  the  collateral  notes  are  greater  in  amount  than 
the  principal  debt,  for  the  use  of  the  parties  beneficially 
interested.  Where,  however,  the  pledge  of  such  instruments 
has  been  fraudulently  made  by  persons  intrusted  with  the 
legal  title,  the  pledgee,  receiving  the  same  in  good  faith, 
and  for  value,  and  without  notice  of  the  fraud,  although 
entitled  to  recover  the  full  amount  as  against  the  parties 
liable  upon  the  securities,  if  necessary  to  reimburse  himself 
for  hh  advances  made  on  the  faith  and  credit  of  such  title, 
is  generally  subject  to  the  equitable  rule  that,  as  against  the 

'Ashton     v.    Taylor,    8     Allen,          'First  Nat.  Bank,  v.  Fowler,  88 
217.  Ohio  St.  524. 

•  Paulette  v.  Brown,  40  Mo.  52.  4  Stone  v.  Brown,  54  Tex.  330. 


MISAPPROPRIATION  IN  PLEDGE.  105 

party  defrauded  he  is  allowed  to  recover  only  the  amount  of 
his  loans.  In  such  cases  of  misappropriation,  the  pledgee  is 
under  no  liability  as  to  any  possible  surplus  to  the  pledger 
by  whose  fraud  the  paper  was  misappropriated.1  The  like 
rule  was  applied  in  the  case  of  a  misappropriation  by  a 
trustee  of  a  promissory  note  belonging  to  the  trust  fund, 
where  the  same  was  taken  as  collateral  security  for  a  debt 
less  than  the  face  of  the  note,  the  cestuis  que  trust  being 
allowed  to  redeem  upon  paying  the  amount  of  the  debt.9 

1  Dresser®.  Missouri  R  R.  Co.,  93  Gilbert,  29  Ib.  521;  Jackson  v.  First 

U.S. 92 ;  Hotchkiss  v.  Nat.  Banks,  22  Nat.  Bank,  42  N.  J.  L.  177 :    Stod- 

Wall.  354;  Morris  «.   Preston,   93  dard  v.  Kiraball,  6  Gush.  469;  Fisher 

111.  215;    Greenwall  v.  Hayden.   78  v.  Fisher,  98  Mass.   303;    Chicopee 

Ky.  322;  Williams  v.  Smith,  2  Hill,  Bank  v.  Chapin,  8  Met.  40;  Maitland 

301;  Watson  v.  Cabot  Bank, 5  Sandf.  v.  Bank,  40  Md.  540;  Belden  fl.Man- 

Ch.  423;  Case  v.  Banking  Assn.  4  N.  ley.  21  Vt.  551  ;  Collins  v.  Martin,  1 

Y.  166;   City  Bank    v.    Perkins,  4  B.  &  P.  648 ;  Treuttel  v.  Barandou, 

Bosw.  420 ;  Buncombe  v.  Railroad  8  Taunt.  100. 
Co.,  84  N.  Y.  190;  Allaire  v.  Harts-         *  Belden  v.  Manley,  21  Vt.  551. 
home,  21  N.  J.  L.  663 ;    Duncan  v. 


106  NEGOTIABLE   COLLATERAL  SECURITIES. 


CHAPTER  IX. 

TRANSFER  AND  SUB-PLEDGE  OF  COLLATERAL  SECURITIES. 

§79.    The  pledgee's  transfer  of  negotiable  securities. 

80.  The  sub-pledge  of  such  collateral  securities. 

81.  Estoppel  of   pledger,  where  pledgee  has  title  and  ownership — the 

sub-pledgee  a  holder  for  value. 

82.  Distinction  between  sub-pledges  of  negotiable  collateral  securities 

and  others  non-negotiable. 

83.  Sub-pledges  for  sums  larger  than  original  advance. 

84.  Discharge  of  the  sub-pledgee. 

§79.  THE  PLEDGEE'S  RIGHT  TO  TRANSFER  NEGOTIA- 
BLE COLLATERAL  SECURITIES. — The  pledgee  of  negotiable 
instruments,  receiving  the  same  properly  indorsed,  where 
required,  so  as  to  be  vested  with  the  full  title  thereto,  may, 
in  the  absence  of  statutory  restriction  or  special  agreement, 
assign  or  transfer  his  principal  claim  against  the  pledger, 
with  the  collateral  security  given  to  secure  its  payment.  The 
pledger,  in  such  cases,  has  no  cause  of  complaint,  so  long  as 
he  is  not  deprived  of  his  right  to  redeem  such  collateral 
securities  upon  payment  of  his  debt.1  The  assignment  may 
be  of  all  the  pledgee's  interest  in  the  collateral  notes,  or 
they  may  be  assigned  conditionally  to  secure  payment  of  his 
own  debt,  or  they  may  be  delivered  up  to  a  bailee  without 
consideration.  Transfer  of  the  principal  and  collateral 
notes  in  either  of  these  ways  is  a  legal  disposition  of  them, 

1  Chapman  t>.  Brooks,  31  N.  T.  75;  v.  Ely,  9  How.  (U.  S.)  580,  601;  Fen- 

Hays  v.  Riddle,  1  Sandf .  248 ;   Dun-  nell   v.   McGowan,  58    Miss.    261 ; 

combe  v.  N.  Y.  R.  Co.  84  N.  Y.  190,  White  Mountain  R.  R.  t>.  Bay  City 

201;  s.  c.  88  Ib.  1;  Lewis  «.  Mott,  36  Iron  Co.,  50  N.  H.  57  ;    Merchants 

N.  Y.  395;  Gould  «.  Farmers'  Loan  Bank  v.  State  Bank,  10  Wall.  604. 
&  Trust  Co.,  23  Hun,  322 ;  Baldwin 


TRANSFER   AND    SUB-PLEDGE.  107 

authorized  by  the  holder's  interest  as  pledgee.1  The  secur- 
ities pledged  for  a  debt  follow  it,  in  equity,  no  matter  how 
the  debt  be  modified,  or  into  whose  hands  it  may  come. 
Until  the  debt  is  paid,  the  pledge  accompanies  it,  and 
remains  for  its  repayment,  and  is  available  to  all  who  may 
acquire  title  thereto.* 

Where  a  pledgee  sells  or  assigns  collateral  securities,  retain- 
ing the  note  or  bill  evidencing  the  original  debt,  and  retains 
possession  until  after  maturity  thereof,  tender  or  payment  to 
the  indorsee  of  collateral  notes  operates  as  a  discharge  of  the 
original  note.  Any  action  brought  thereafter  upon  the  note, 
either  by  the  pledgee  or  by  any  indorsee  thereof,  taking  the 
same  after  maturity,  may  be  successfully  defended  by  show- 
ing payment  or  tender  by  the  pledger  to  the  holder  of  the  col- 
lateral notes.  The  pledger  may  also,  after  making  such  tender, 
file  a  bill  in  equity,  making  the  pledgee  and  the  holder  of  the 
collateral  securities  parties,  and  thus  settle  the  rights  of  all 
interested.3  Where  such  negotiable  collateral  securities  are 
wrongfully  assigned  to  a  third  person,  without  authority  of 
the  debtor,  the  pledgee  may  be  charged  with  the  face  value 
thereof  in  payment  of  the  principal  debt.4 

Equity  will  refuse  to  sustain  an  unjust  and  unconscion- 

1  Goss  v.  Emerson,  23  N.  H.  38.  fendant    in    whose    knowledge  the 

*  Stearns  v.  Bates,  46  Conn.  313  ;  matter  lay,  it  must  be  taken  as  be- 

Jones  v.  Quinnipack  Bank,   29  Ib.  fore  the  time  the  bill  was  dishonored, 

25;  Lewis  v.  DeForest,   20  Ib.  427;  and  consequently  at  a  time  when  the 

Belcher  v.  Hartford    Bank,  15    Ib.  first  pledgee  was  not  yet  entitled,  by 

383.  virtue  of  his  contract  with  the  pledg- 

sTalty  v.  Freedman's  etc.  Co  ,  93  or,  to  dispose  of  the  collateral  securi- 

U.  8.  321.     In  Donald  v.  Suckling,  ties. 

L.  R.  1   Q.  B.  585,  611,  debentures,  *  Hawks  v.  Hincliff,  17  Barb.  492. 

non-negotiable,  had  been  pledged  as  The  like  rule  is  applied  under  the 

collateral  for  the  payment  of  a  bill  of  Louisiana  Code,  where  the  pledgee 
of  exchange,  with  power  of  sale.  '  holding  a  note,  or  other  collectible 

The  collateral  securities  were    sub-  instrument,  sub-pledges    the  same, 

pledged  by  the  pledgee.     The  plea  He    is    chargeable    wit^i    the    full 

failed    to  state    whether    the    sub-  amount  of  the  security,    unless  he 

pledge  of  the  collateral  securities  was  can  show  that  it  was  worth  less  than 

made  after  the  maturity  of  the  bill  of  its  face  value.    Laloire  «.  Wiltz,  29 

exchange,  but,  as   against  the   de-  La.  Ann.  329. 


108  NEGOTIABLE  COLLATERAL  SECURITIES. 

able  agreement  between  the  pledger  and  pledgee  and  third 
parties,  whereby,  upon  default,  the  collateral  securities  are 
absolutely  forfeited,  and  under  which  upon  default  after  a 
sale  of  the  collaterals  realizing  more  than  enough  to  pay  the 
debt,  an  action  is  brought  upon  the  principal  note.1 

§80.  THE  SUB-PLEDGE  OF  SUCH  COLLATERAL  SECURI- 
TIES.— The  pledgee  of  negotiable  instruments  may  sub- 
pledge  such  collateral  securities  to  secure  the  re-payment  of 
an  advance  made  bona  fide  by  a  third  person  to  himself.*  By 
a  sub-pledge  of  such  negotiable  securities,  a  pledgee  hold- 
ing the  legal  title  and  the  apparent  absolute  ownership 
thereof,  may  transfer  to  a  sub-pledgee,  receiving  the  same 
bona  fide,  for  a  valuable  advance  before  maturity  and  with- 
out notice  of  equities,  upon  the  faith  of  such  title  and  pos- 
session, a  more  extended  right  over  such  negotiable  instru- 
ments held  as  collateral  security  than  he  himself  possesses 
under  the  original  contract  of  pledge,  although  such  sub- 
pledge  in  fact  be  a  tortious  act.3  Nor  is  the  sub-pledge  of 

1  Dorrill  v.  Eaton,  35  Mich.  302.  instruments  did  not  arise  as  the  sub- 
*  Ex  parte  Sergant,  L.  R.,  17  Eq.  pledge  was  made  for  a  less  sum  than 
279  (Jessell,  M.  R.),  speaking  of  a  the  amount  of  the  original  pledge, 
mortgage  or  pledge  with  legal  title  In  Jar  vis  v.  Rogers,  supra,  Jar  vis. 
of  securities,  "Like  every  other  the  intestate,  was  considerably  in- 
mortgagee,  he  had  a  right  to  re-bor-  debted  to  one  Russell,  who  held  in 
row  and  to  transfer  his  security."  his  possession  certain  negotiable 
Langton  v.  Waite,  L.  R.  6  Eq.  165.  scrip,  indorsed  in  blank  by  Jarvis, 
The  court  (Malins,  V.  C.):  "It  is  a  and  subsequently  made  a  definite 
right  which  the  lender  of  money  loan  of  $5^0  thereon.  Russell  aftcr- 
upon  any  security  would  have."  To  wards  being  in  want  of  funds, 
like  effect,  France  0.  Clark,  L.  R.  through  a  broker,  sub -pledged  the 
22  Ch.  D.  830;  Merchants' Bank  v.  securities  to  the  defendant,  as  col- 
State  Bank,  10  Wall.  604.  lateral  security  for  his  own  promts- 
'Jarvis  v.  Rogers,  13Mass.  105;  8.  sory  note  for  $1,500,  made  payable 
c.  15  Ib.  389,  417;  Briggs  v.  Rice,  to  the  broker,  and  indorsed  by  him 
130  Ib.  50;  Gould  v.  Farmers'  Loan  to  the  defendant.  Subsequently  the 
and  Trust  Co.,  23  Hun,  322.  In  amount  due  on  the  Russell  note  was 
Draper  v.  Saxton,  118  Mass.  427,  the  reduced  to  $1,000.  Without  making 
amount  of  recovery  which  might  be  any  tender,  an  action  of  trover  was 
had  by  the  sub -pledgee  of  negotiable  brought  by  the  representatives  of 


TRANSFER   AND   SUB-PLEDGE.  109 

negotiable  instruments  limited  to  the  first  use  thereof.  The 
sub-pledgee  receiving  such  collaterals,  properly  indorsed, 
before  maturity,  in  good  faith,  for  value,  and  without  notice 
of  equities,  is  a  holder  for  value,  in  the  usual  course  of  busi- 
ness, as  against  all  the  world,  equally  with  the  first  pledgee, 
receiving  the  same  under  like  conditions.  The  sub-pledgee 
may,  in  the  absence  of  notice  of  the  rights  of  the  original 
pledger,  transfer  or  again  sub-pledge  such  securities  to  any 
person  to  the  extent  of  his  own  advances ;  and  upon  a  bona 
fide  advance  of  a  valuable  consideration,  made  upon  the 
faith  and  credit  of  such  paper,  before  maturity,  and  without 
notice,  the  sub-pledgee  may  in  turn,  convey  to  a  second 
sub-pledgee  a  greater  interest  in  such  negotiable  securities 
than  he  himself  possesses.  The  latter,  as  a  holder  for 
value,  in  the  usual  course  of  business,  is  entitled  to  enforce 
such  collateral  securities  against  all  parties  for  the  full  face 
value  thereof,  holding  any  surplus  for  the  benefit  of  the  per- 
son or  persons  entitled.1 

§81.  ESTOPPEL  OF  PLEDGOR,  WHERE  PLEDGEE  HAS 
TITLE  AND  OWNERSHIP. — THE  SUB-PLEDGEE  A  HOLDER 
FOR  VALUE. — A  sub-pledgee  of  negotiable  instruments, 

Jarvis  against  the  sub-pledgee.    The  Bame  case,  15  Mass.  389,  all  the  four 

Court  said:     "It  is  enough  that  the  judges  delivering  opinions  refer  to 

defendant  has  received  the  scrip  as  the    right    of    the    sub-pledgee    to 

collateral  security  for  a  debt,  and  recover  the  full  amount  of  his  ad- 

that  the  debt   has    not  been    dis-  vance   as  being    unquestioned,  al- 

charged.     When  that  debt  is  paid,  or  though  the  sub-pledge,  as  between 

a  legal  tender  thereof  made,  as  he  the  parties  to  the  original  contract 

received  them  only  to  secure  the  of  pledge,  was  a  breach  of  trust, 

debt,  he  will  probably  deliver  them  "the  effect  of  which,"  as  said  by 

to  whomsoever  they  shall    appear  Parker,  C.  J.,  "  was  not  to  increase 

lawfully  to  belong."    A  tender  was  Russell's    (the    pledgee)    rights,  al- 

then  made  by  the  representatives  of  though,    under    the  circumstances, 

Russell,  also  deceased;    but  the  sub-  Rogers  (the  sub  pledgee)  acquired  a 

pledgee  refused  to  deliver,  as  the  rep-  more  extended  right  over  the  proper- 

resentatives  of  Jarvis    claimed  the  ty  than  Russell  had." 
scrip,  and  shortly  thereafter  tendered          1  Gould  v.  Farmers'  Loan  and  Trust 

the  amount  of  his  claim  to  the  sub-  Co.,  23  Hun,  322. 
pledgee.    At  a  later  hearing  of  the 


110  NEGOTIABLE   COLLATERAL  SECURITIES. 

where  the  same  are  held  with  full  title  and  apparent  abso- 
lute ownership  by  the  pledgee,  is  protected  to  the 
full  extent  of  his  advances  thereon,  although 
exceeding  the  amount  for  which  such  collateral 
securities  are  in  fact  held  by  the  pledgee,  provided 
such  sub-pledgee  has  received  the  same  in  good  faith,  before 
maturity,  for  value,  and  without  notice  of  antecedent  equi- 
ties, in  the  usual  course  of  business ;  otherwise,  he  can  take 
no  greater  rights  than  those  of  the  first  pledgee.1  The 
claims  of  such  sub-pledgees  are  supported  upon  the 
rule  of  equitable  estoppel,  that  where  a  pledger  of  nego- 
tiable instruments,  by  his  indorsement  and  delivery  thereof, 
has  given  the  pledgee  the  title  and  apparent  absolute  owner- 
ship of  such  instruments,  and  has  thus  enabled  him  to  de- 
ceive an  innocent  sub-pledgee,  receiving  the  same  before 
maturity,  without  notice,  and  for  a  valuable,  consideration 
advanced  upon  the  credit  of  such  title  and  ownership,  the 
pledger  is  estopped  to  set  up  any  equities  or  defenses  exist- 
ing as  between  the  pledgee  and  himself,  to  the  injury  and 
loss  of  the  sub-pledgee.  In  such  cases,  where  one  of  two 
innocent  persons  must  suffer  from  the  wrong  and  deceit  of 
a  third  person,  the  one  who,  by  his  affirmative  acts  or  neg- 
lects, has  enabled  the  wrong  and  deceit  tosbe  done,  should 
suffer  the  loss.  Any  other  rule  would  be  inconsistent  with 
the  acknowledged  position  of  a  pledgee  or  sub-pledgee  of 
negotiable  instruments,  before  maturity,  in  good  faith, 
for  value,  and  without  notice,  as  a  holder  for  value,  in  the 
usual  course  of  business,  with  an  unimpeachable  title.1 


1  Jarvis  v.  Rogers,  supra;  Gould  v.  Rep.  396);   Swift  «.  Smith,  102  U.S. 

Farmers'  Loan  and  Trust  Co.,  su-  442 ;  Railroad  Co.  v.  Nat.  Bank,  Ib. 

pra.  14;  Collins  v.  Martin,  1  B.  &  P.  143. 

1  Bank  of  New  York  e.  Vander-  Fuentis  «.  Montis,  L.  R.  3  C.  P.  268, 

hoorst,  32  N.  Y.  553;  Manhattan  Co.  276;  Langton  v.  Waite,  L.  R.  6  Eq. 

0.  Reynolds,    2  Hill,    140;    Pough-  165;  Exparte  Sergant,  L.  R.  17  Eq. 

keepsie  v.  Hasbrouck,  6   N.  Y.  216,  279;    France  v.    Clark,  L.  R.  22  Ch. 

230; Richardson  v.  Rice,  9Tenn.290;  D.  830. 
City  Bank  v.  Taylor  60  la.  66  (15 


TRANSFER  AND   SUB-PLEDGE.  Ill 

§82.  DISTINCTION  BETWEEN  SUB-PLEDGES  OF  NEGO- 
TIABLE COLLATERAL  SECURITY,  AND  OTHERS  NON-NEGO- 
TIABLE.— A  distinction  is  properly  drawn  between  cases  of 
sub-pledge  of  negotiable  collateral  securities  and  of  securi- 
ties of  a  quasi  or  non-negotiable  character,  and  pledges  of 
personal  property.  In  neither  of  the  last-named  cases,  in  the 
absence  of  any  application  of  the  rules  of  equitable  estoppel, 
can  the  pledgee  confer  any  greater  right  or  interest  than 
he  possesses,  and  upon  a  tender  or  payment  of  the  original 
debt,  the  pledger  is  entitled  to  a  return  of  the  collateral 
securities,  and  may  recover  from  the  pledgee  any  special 
damages  sustained  by  reason  of  the  sub-pledge.  The  pledger 
is  entitled  to  such  return,  not  withstanding  the  advance  of 
the  sub-pledgee  is  larger  in  amount  than  the  original  indebt- 
edness to  the  pledgee.1  This  distinction  was  referred  to  in 
the  argument  of  the  case  of  Donald  v.  Suckling,  in  which 
Jarvis  v.  Rogers*  was  cited  as  a  case  of  sub-pledge  of  nego- 
tiable securities,  the  decision  itself  being  chiefly  based  upon 


1  Donald  v.  Suckling,  L.  R.  1  Q.  B.  of  the  debt."  Mellor  (J.)  said  (p. 610): 
585.'Cockburn  (C.  J.)  said:  "  I  am  of  ''Although  the  pledgee  can  not  confer 
opinion  that  the  transfer  of  the  upon  any  third  person  a  better  title 
pledge  does  not  put  an  end  to  the  or  a  greater  interest  than  he  pos- 
contract,  but  amounts  only  to  a  sesses,  yet  if,  nevertheless,  he  does 
breach  of  the  contract  upon  which  pledge  the  goods  to  a  third  person  for 
the  owner  may  bring  an  action — for  a  greater  interest  than  he  possesses, 
nominal  damages  if  he  has  sustained  such  an  act  does  not  annihilate  the 
no  substantial  damages;  for  sub-  contract  of  pledge  between  himself 
Rtantial  damages,  if  the  thing  pledged  and  the  pawnor,  but  that  the  trans- 
is  damaged  in  the  hands  of  a  third  action  is  simply  inoperative  as 
party,  or  the  owner  is  prejudiced  by  against  the  original  pawnor,  who 
delay  in  not  having  the  thing  deliv-  upon  tender  of  the  sum  secured,  im- 
ered  to  him  on  tendering  the  amount  mediately  becomes  entitled  to  the 
for  which  it  was  pledged.  It  seems  possession  of  the  goods,  and  can  re- 
to  me  that  the  contract  continues  in  cover  in  an  action  for  any  special 
force,  and  with  it  the  special  proper-  damage  he  may  have  sustained  by 
ty  created  by  it,  until  the  thing  reason  of  the  act  of  the  pawnee  in 
pledged  is  redeemed,  or  sold  at  the  repledging  the  goods."  Blackburn 
time  specified.  The  pawnor  can  not  (J.)  also  agreed, 
treat  the  contract  as  at  an  end,  until  *  13  Mass.  105;  B.  c.  Ib.  380. 
he  has  paid  or  tendered  the  amount 


112  NEGOTIABLE  COLLATERAL   SECURITIES. 

the  case  of  Johnson  v.  Stear1  a  pledge  of  dock  warrants, 
non-negotiable  instruments.  In  the  case  of  Talty  v.  Freed- 
man's  Savings  and  Trust  Company*  the  collateral  security 
was  a  certificate  issued  by  the  District  of  Columbia  Com- 
missioners to  the  pledgor,  upon  a  claim  for  certain  work  and 
materials,  indorsed  in  blank.  It  was  not  regarded  as  a  ne- 
gotiable instrument  in  any  sense,  although  the  case  of  Jarvis 
v.  Rogers  was  cited.  The  same  distinction  is  briefly  noted 
by  Judge  Story  in  his  work  on  Bailments.1  ru£  fvv/vcvuc**/ 

' 


§83.  SUB-PLEDGES  FOR  SUMS  LARGER  THAN  ORIGINAL 
ADVANCE.  —  An  illustration  of  the  rights  of  sub-pledgees  of 
negotiable  instruments  is  found  in  a  recent  case  in  Massachu- 
setts. B.,  the  holder  of  a  negotiable  promissory  note  for 
$1,500,  secured  by  mortgage,  borrowed  $300  of  C.,  assigning 
the  note  and  mortgage  as  collateral  security,  reciting  that 
the  consideration  for  the  assignment  was  $300.  Shortly 
afterwards  C.,  obtained  a  loan  of  $1,200  from  D.,  indorsing 
the  collateral  note  before  maturity  and  assigning  the  mort- 
gage, as  collateral  security  for  the  advance.  B.,  brought  an 
action  to  redeem  the  note  and  mortgage  from  D.  No  notice 
was  presumed  to  the  sub-pledgee  from  the  recital  of  the  con- 
sideration of  $300,  nor  was  knowledge  thereof  sufficient  to 
establish  fraud  on  his  part.  The  pledgor  was  allowed  to  re- 
deem his  securities  upon  paying  the  full  amount  for  which  the 
sub-pledgee  held  the  note  and  mortgage  as  collateral  security. 
The  Court  said:  "  The  defendant  became  the  holder  of  this 
note  for  a  valuable  consideration  before  its  maturity,  and 
had  no  actual  notice  of  any  equities  which  would  defeat  his 
right  to  recover  an  amount  sufficient  to  secure  the  payment 
of  the  debt  for  which  it  was  pledged.  The  smallness  of  the 


1  15  C.  B.  (N.  B.)  380.  transfer  thereof  to  his  own  creditor, 

'  93  U.  8.  321.  as  if  he  were  the  absolute  owner,  it 

*  §325.  "  But  if  the  pawnee  should  is  clear  that  in  such  a  case  he  would 

undertake   to  pledge  the  property  be  guilty  of  a  breach  of  trust,  and 

(not  being  negotiable  securities)  for  a  his  creditor  would  acquire  no  title 

debt  beyond  his  own,  or  to  make  a  beyond  that  held  by  the  pawnee.  " 


TRANSFER   AND  SUB-PLEDGE.  113 

consideration  certainly  can  not  be  treated  as  actual  notice 
that  the  note  was  subject  to  some  unknown  equity,  the  na- 
ture of  which  it  was  the  duty  of  the  defendant  to  ascertain 
at  his  peril."1 

Certain  negotiable  securities  were  deposited  as  collateral 
security  with  A  to  secure  loans,  who  sub-pledged  them  to 
B  to  secure  a  loan  made  by  B  to  himself,  and  on  the  same 
day  B  again  sub-pledged  the  securities  with  others,  to  0 
for  a  loan  to  himself.  B  shortly  thereafter  became  in- 
solvent, and  A,  in  order  to  obtain  his  securities  from  C  was 
obliged  to  pay  the  full  market  value  thereof.  In  a  suit  by 
A  to  compel  the  marshalling  of  securities  by  C,  which  he 
had  received  from  B.  the  right  of  the  pledgee  to  sub-pledge 
the  securities  for  an  advance,  was  recognized,  and  the 
further  pledge  by  the  sub-pledgee,  having  being  made  to  C 
who  had  no  notice  of  any  right,  title  or  interest  of  the  first 
pledgee,  entitled  C  to  hold  the  same  as  against  all  parties  to 
the  extent  of  his  bona  fide  actual  advances,  as  a  greater  in- 
terest in  such  collaterals  could  be  conveyed  by  the  sub- 
pledgee  than  he  himself  possessed.* 

Where  a  sub-pledgee  allows  a  collateral  note,  which  is 
for  a  larger  sum  than  the  principal  indebtedness,  to  become 
barred  by  the  statute  of  limitations,  and  subsequently  brings 
an  action  on  the  indorsement  of  the  principal  note  by  the 
first  pledgee,  it  is  a  good  defense  thereto,  that  the  sub-pledgee 
by  his  gross  negligence  has  become  liable  for  the  amount  of 
the  collateral  note,  exceeding  the  amount  due  on  the  princi- 
pal note.8 

§84.  THE  DISCHARGE  OF  THE  SUB-PLEDGEE. — Where 
negotiable  collateral  securities  have  been  sub-pledged  by  the 
pledgee  for  an  advance  to  himself,  he  can  discharge  himself 
from  any  obligation  to  the  original  pledgor,  by  delivering 

1  Brooks  v.  Rice,  130  Mass.  50.  *  Farnell  v.  McGowan,  58   Miss. 

8  Gould    v.  Farmers'    Loan    and      261. 
Trust  Co.,  23  Huu.  322. 


114  NEGOTIABLE  COLLATERAL  SECURITIES. 

up  the  Securities  to  his  own  pledger,  the  first  pledgee,  at 
any  time  before  an  offer  to  redeem  is  made  by  the  original 
pledger.1  Nor  will  an  action  accrue  to  the  original  pledger 
against  the  first  pledgee,  for  conversion  of  the  negotiable 
collateral  securities  where,  after  having  made  a  sub-pledge 
thereof  for  a  loan  to  himself,  the  pledgee,  before  the  ma- 
turity of  the  orginal  evidence  of  indebtedness,  or  payment 
or  tender  thereof,  repaid  the  loan  made  by  the  sub-pledgee, 
and  received  back  the  collateral  securities.* 

1  Shelton   «.    French,    33    Conn.         *  Jarvis  v.  Rogers,  15  Mass.  389; 
489.  Shelton  V.  French,  supra. 


THE   DUTIES   OF  THE  PLEDGEE.  115 


CHAPTER  X. 

THE  PLEDGEE'S  DUTIES    AS  TO   COLLATERAL   SECURITIES. 

gSo.    The  primary  purpose  of  collateral  security 

86.  The  pledgee  of  negotiable  collateral  securities  under  special  agree- 

ment. 

87.  The  pledgee  as  trustee  of  collateral  securities. 

88.  The  pledgee's  duty  to  present,  and  give  notice  of  non-payment. 

89.  Limitations  as  to  pledgee's  duty  in  giving  notice 

90.  The  duty  of  the  pledgee  to  collect  collateral  notes. 

91.  The  pledgee,  with  title,  entitled  to  recover  face  value  of  collateral 

notes. 

92.  Limitations  in  certain  cases,  upon  the  pledgee's  recovery. 

93.  The  pledgee's  receipt  and  collection  of  short  collateral  notes. 

94.  The  pledgee's  duty  as  to  uncollectible  collateral  paper. 

95.  The  use  of  over-due  negotiable  paper  as  collateral  security. 

96.  Pledgee  can  not  compromise  nor  surrender  collateral  securities. 

97.  Collateral  securities  can  not  be  applied,  without  agreement,  to  other 

debts. 

98.  "Marshalling  securities,"  as  applied  to  collateral  securities. 

99.  Sub-pledgees  of  collateral  securities,  subject  to  like  rules. 

100.  Application  of  payments  and  interest  on  collateral  securities. 

101.  The  statute  of  limitations,  as  applied  to  collateral  securities. 

102.  Production  and  return  of  collateral  securities  on  payment  or  tender 

of  debt. 

103.  The  pledgee  not  required  to  keep  identical  bonds. 

§  85.  THE  PRIMARY  PURPOSE  OF  COLLATERAL  SE- 
CURITY.— The  primary  purpose  of  the  use  of  negotiable 
instruments  as  collateral  security  for  the  payment  of  a 
principal  note  or  obligation  of  the  pledger,  is  to  place  in 
the  hands  of  the  pledgee,  by  indorsement  and  delivery,  the 
means  of  reimbursement  for  the  money  advanced  upon  the 
principal  indebtedness,  if  default  occurs  in  the  payment  there- 
of. The  contract  of  pledge,  under  such  circumstances,  carries 
with  it  an  implication  that  the  collateral  securities  may  be 


116  NEGOTIABLE  COLLATERAL  SECURITIES. 

made  effectual  to  discharge  the  debt  or  obligation  of  the 
pledgor.1  A  pledgee  has  the  right  to  determine  for  himself 
as  to  the  occasion  and  mode  of  enforcing  payment  of  the 
collateral  securities,  so  long  as  he  acts  in  good  faith,  and  in 
the  exercise  of  a  reasonable  judgment  and  discretion  in 
view  of  the  rights  and  interests  of  the  pledgor.9  And 
should  the  latter  be  dissatisfied  with  the  judgment  of  the 
pledgee,  in  declining  to  take  any  proceedings  upon  such 
collateral  securities,  the  pledgor  may  himself,  upon  giving 
proper  indemnity,  proceed  to  enforce  the  same,  as  against 
the  parties  bound.8 

§  86.  THE  PLEDGEE  OF  NEGOTIABLE  COLLATERAL  SE- 
CURITIES UNDER  SPECIAL  AGREEMENT. — The  time  and 
mode  of  performance  of  the  duties  of  the  pledgee  of  col- 
lateral securities,  in  enforcing  the  same  by  suit,  or  otherwise 
realizing  the  same,  may  be  made  the  subject  of  agreement 
between  the  parties,  in  which  event  the  rights  of  the  par- 
ties will  be  governed  thereby.  Only  in  the  event  of  acci- 
dent, mistake  or  fraud,  will  evidence  be  admissible  to  show 
a  parol  agreement,  made  contemporaneously  with  the 
pledge  and  as  part  of  the  transaction,  changing  the  terms 
of  the  written  instrument.4  And  upon  an  agreement  of  the 
pledgee,  by  his  contract,  to  return  the  collateral  securities 
upon  payment,  or  pay  an  equivalent  in  money,  it  is  no  de- 
fense, the  debt  being  paid,  that  such  collateral  securities 
have  been  destroyed  without  his  default.8  A  provision  in 
a  contract  of  pledge  that  suit  shall  not  be  brought  upon 
collateral  securities,  is  unavailing  as  a  defense  to  the  maker 

1  Wheeler  t>.  Newbould,  16  K  Y.  erts  v.  Thompson,  14  Ohio  St.  1 ; 

89.  Lee».  Baldwin,  10  Ga.  208;  Lam- 

8  Wells  v.  Wells,  53  Vt.  1.  berton  v.  Wmdom,    12  Minn.  232; 

•  Bast  0.  Bank,  101  U.  S.  93;  Wells  Pickens  v.  Yarborough,  2G  Ala.  417; 

v.  Wells,  supra;  Lamberton  v.  Win-  Lawrence  v.  McCalmont,  2  How. 

dom,  12  Minn.  232,  241;  Hayes  t>.  426;  Soule  «.  Union  Bank,  45  Barb, 

Ward,  4  Johns.  Ch.  128.  111. 

«  Bast  t>.  Bank,  101  U.  S.  93;  Rob-  •  Drake  t>.  White,  117  Mass.  10. 


THE  DUTIES   OF  THE  PLEDGEE.  117 

or  indorser  liable  thereon,  their  liability  being  unaffected  by 
any  such  stipulation.1 


§  87.  THE  PLEDGEE  AS  TRUSTEE  OF  COLLATERAL 
SECURITIES. — The  relation  of  the  immediate  parties  to  the 
contract,  where  negotiable  instruments  have  been  placed  in 
the  hands  of  a  creditor  by  a  debtor  as  collateral  security, 
for  the  payment  of  a  valid  debt  or  obligation,  resembles 
that  of  a  trustee  and  cestui  que  trust.  The  responsibilities 
of  the  pledgee  to  the  pledger  are  similar  to  those  of  a  trus- 
tee :  First,  to  collect  and  apply  the  securities  at  their  ma- 
turity to  the  payment  of  the  debt,  in  the  case  of  promissory 
notes  and  bills  of  exchange  ;  though  sale  may  be  made 
where  the  collateral  securities  are  long  time  negotiable 
bonds ;  and,  secondly,  to  pay  over  the  surplus,  if  any,  to 
the  pledger.  The  pledgee  is  also  likened  to  a  trustee, 
as  he  may  not  deal  with  the  trust  property  so  as  to  destroy 
or  impair  its  value.8  In  Vermont  and  New  Hampshire, 
when  a  negotiable  bill  is  indorsed  as  collateral  security 
for  an  antecedent  debt,  the  general  property  remains  in  the 
indorser,  the  indorsee  holding  it  as  a  pledge,  and  taking  the 
legal  title  in  trust,  to  account  for  the  proceeds  to  the  princi- 


1  Nelson  v.  Eaton,  26  N.  T.  410;  111.  548.  Where  the  debt  for  which 

Bank  of  Chenango  v.  Osgood,  4  the  collateral  note  has  been  pledged 

"Wend.  607,  612.  is  paid  pending  action  on  the  secur- 

*  Wheeler  v.  Newbould,  16  N.  Y.  ity,  but  before  judgment, the  pledgee 

392;  Nelson  ».  Eaton  26  Ib.  410;  collecting  the  money  upon  the  judg- 

Hawks  v.  Hincliff ,  17  Barb.  492 ;  ment,  holds  the  same  as  trustee  for 

Union  Trust  Co.  v.  Rigdon,  93  111.  those  who  are  legally  or  equitably 

458,465;  Zimpleman  v.  Veeder,  98  entitled  thereto.  Houser  v.  Houser, 

Ib.  613;  Knights  v.  Palmer,  3  Pick.  43  Ga.  415.  The  position  of  the 

185.  "A  person  holding  property  pledgee  is  this :  that  if  he  sue  a  third 

or  securities  in  pledge  occupies  the  party,  he  sues  as  trustee  for  the 

relation  of  trustee  for  the  owner,  and  pledger,  as  regards  the  difference  in 

as  such,  in  the  absence  of  special  the  amount  taken  between  the  sum 

power  to  do  otherwise,  is  bound  to  which  he  has  advanced  and  the 

proceed  as  a  prudent  owner  would."  amount  of  the  bill."  Reid  v.  Furni- 

Joliet  Iron  Co.  v.  Scioto  etc.  Co.,  82  val,  1  Cr.  &  M.  538. 


118  NEGOTIABLE   COLLATERAL  SECURITIES. 

pal.1  The  fact  that  a  promissory  note  absolutely  transferred 
by  indorsement  and  delivery  so  as  to  pass  full  title,  was 
deposited  as  a  pledge  may  be  proved  by  parol.* 

§  88.  THE  PLEDGEE'S  DUTY  TO  PRESENT*  AND  GIVE 
NOTICE  OP  NON-PAYMENT. — The  holder  of  negotiable  in- 
struments as  collateral  security,  receiving  the  same  so  as  to 
become  a  party  thereto,  is  required  to  demand  payment  of 
the  same  at  maturity,  and  in  case  of  non-payment,  to  give 
proper  notice  to  charge  the  parties  liable  thereon.  The 
pledgee  having  the  legal  title  to  such  securities,  no  other 
person  can  perform  these  duties  ;  and  if  by  the  pledgee's 
failure  or  neglect,  the  indorsers  or  other  parties  thereto  are 
discharged,  he  is  responsible  for  any  loss.3  It  is  not  material, 
in  the  case  of  bills  or  notes,  to  which  the  pledger  is  not  a 
party  by  indorsement,  that  immediate  notice  of  non-payment 
should  be  given  him,  where  the  parties  thereto  have  been 
properly  charged.4  In  such  cases  the  pledger  is  not,  within 
the  custom  of  merchants,  a  party  to  the  bill  or  note  so  as  to 
be  entitled  to  a  strict  regular  notice,  nor  discharged  from 
his  principal  obligation  by  the  neglect  of  the  pledgee  to 
give  him  such  notice,  unless  he  has  suffered  loss  or  damage 
by  reason  of  the  failure  of  the  pledgee  in  this  respect.8  Nor 

1  Austin  v.  Curtis,  31  Vt.  72;  Jen-  Fortune,  16  S.  &  R.  302;    Whiting 

ness  v.  Bean,  10  N.  H.  266;    Will-  v.  Paul,  13  R.  I.  40;  Foot  ®.  Brown, 

iams  v.  Little,  11  N.  H.  66.  2  McLean  C.  C.  369;   Allen  v.  King, 

«  Wood  v.  Matthews,  73  Mo.  477.  4  Ib.  128;  Childs  v.  Corp,  1  Paine. 

«  Railroad  Co.  v.  Nat  Bank,  102  284. 

U.  S.  14;  Pickens  v.  Yarborough,  26  «  Gibson  v.  Tobey,  53  Barb.  191, 

Ala.  417;  Russell  v.  Hester,  10  Ib.  199;  Hunter  v.  Moul,  98  Pa.  St.  13. 

535;  Rice  v.  Benedict,  19  Mich.  132;  •  Westphal  v.  Ludlow,  2  McCrary, 

Jennison  v.   Parker,  7   Mich.  355;  505;  Wildes  v.  Savage,  1  Story,  22; 

McLenore  v.  Hawkins,  46  Miss.  715;  Douglas  v.  Reynolds,  7  Peters,  125; 

Jones  V.  Hicks,  52  Ib.  682;   Barrow  Oxford  Bank  c.   Haynes,  8   Pick. 

t>.  Rhinelander,   8  Johns.   Ch.  614;  423,  428;  Gibbs  «.  Cannon,  9  8.  & 

Dayton  v.  Trull,  23  Wend.  345;  Cut-  R.  198;  Hunter  v.  Moul,  98  Pa.  St. 

ting  v.  Malor,  78  N.  Y.  454 ;  Hunter  13.     "  The  plaintiffs  are  not  held  to 

t>.  Moul,  98  Pa.  St.  18  ;   McLughan  strict  rules  in  regard  to  the  present- 

«.  Bovard,  4  Watts,  308;  Ormsby  v.  ment  at  maturity  of  the  note  taken 


THE   DUTIES   OP   THE   PLEDGEE.  119 

the  failure  of  the  pledgee  to  present  and  collect  at 
maturity  collateral  notes,  entitle  the  pledger  to  set  up  such 
default  as  payment  of  a  judgment  on  the  principal  note.1 

§  89.  LIMITATIONS  AS  TO  THE  PLEDGEE'S  DUTY  IN  GIV- 
ING NOTICE. — Where  the  collateral  security  is  an  accom- 
modation bill  of  exchange,  and  the  drawee  has  never  been 
supplied  with  funds,  and  is  bankrupt,  the  pledgee  is  not 
responsible  for  any  loss  resulting  from  his  failure  to  make 
demand  and  give  notice  of  non-payment,  as  the  drawer  has 
suffered  no  injury  therefrom.*  The  holder  of  a  bill  of  ex- 
change, unable  by  due  diligence  to  ascertain  the  residence 
of  the  drawer,  is  excused  from  giving  him  notice  of  the  dis- 
honor of  the  bill.8  A  negotiable  promissory  note  of  a  third 
party  was  indorsed  and  delivered  to  a  pledgee,  upon  an 
advance,  showing  upon  its  face  a  written  memorandum, 
"  This  note  is  collateral  security  for  the  payment  of  the  an- 
nexed draft  of  A  on  B  erf  $8,000,"  that  being  also  the  amount 
of  the  note.  Default  occurred  on  both  the  bill  of  exchange 
and  note ;  notice  of  non-payment  was  given  to  charge  the 
parties  on  the  latter,  but  no  notice  was  given  to  the  drawer 
of  the  bill.  The  maker  of  the  note  and  acceptor  of  the  bill, 
being  insolvent,  the  pledgee  brought  an  action  against  an 

as  collateral  security  and  notice  of  *  Reeves  v.  Plough/41  Ind.  204. 
non-payment  to  their  debtor.  The  '  Compton  v.  Blair,  46  Mich.  1. 
note  was  not  received,  although  in-  Or  where  the  drawer  has  failed  to 
dorsed  by  the  defendant,  upon  the  provide  other  funds  in  place  of 
condition  that  they  would  exercise  those  originally  deposited,  he  is  en- 
such  diligence.  It  does  not  repre-  titled  to  no  notice.  Rhett  v.  Roe,  3 
sent  the  original  debt,  and  to  hold  How.  457;  Sharp  v.  Bailey,  9  B.  & 
the  defendant  it  is  not  necessary  that  C.  44;  Claridge  v.  Dulton,  4  M.  & 
the  plaintiff  should  regularly  pro-  S.  226. 

ceed  to  have  the  note  presented  and  *  Rhett  v.  Roe,  2  How.  457 ;  Putnam 

protested.    It  was  not  a  satisfaction  v.  Sullivan,  4  Mass.  53 ;    Duncan  v. 

or  extinguishment  of  the  original  McCullogh,  4  S.  &  R.  480;  Cateman 

debt,  and  a  failure  to  give  notice  of  0.  Joseph,  2  Camp.  462. 
non-payment  will  not  necessarily  de- 
feat a  recovery."    Westphal  v.  Lud- 
low,  supra. 


120 


NEGOTIABLE  COLLATERAL   SECURITIES. 


indorser  of  the  collateral  note.  No  discharge  of  such 
indorser  resulted  from  the  failure  of  the  pledgee  to  give 
notice  to  the  drawer  of  the  principal  obligation.  In  such 
case,  where  the  action  is  upon  a  collateral  undertaking 
separate  from  the  principal  contract,  the  obligation  upon  the 
pledgee  to  give  notice  of  non-payment  is  not  strictly  en- 
forced, and  no  presumption  of  injury  arises,  as  a  matter  of 
course,  upon  such  failure.1 

§  90.  THE  DUTY  OP  THE  PLEDGEE  TO  COLLECT  COL- 
LATERAL NOTES. — The  pledgee  of  negotiable  bills  of 
exchange  or  notes,  acquires,  where  the  same  are  transferred 
so  as  to  make  him  a  party  thereto,  the  legal  title  in  such 
negotiable  collateral  securities,  and  is  entitled  to  receive  the 
sum  due  upon  the  same  from  the  parties  liable  thereon,  and 
in  the  event  of  default,  to  proceed  by  action  to  collect  the 
whole  face  value  thereof,  holding  the  proceeds  to  be  applied 
in  payment  of  the  principal  indebtedness.*  The  pledgee, 


1  Rhett  v.  Roe,  2  How.  457;  Rey- 
nolds v.  Douglas,  12  Pet.  497;  Gibbs 
c.  Cannon,  9  S.  &  R.  198;  Warring- 
ton  v  Furbor,  8  East,  242;  Philips  v. 
Austin,  2  Taunt.  206 ;  Wright  v. 
Simpson,  6  Ves.  732. 

•May  v.  Sharp,  49  Ala.  140; 
Houser  v.  Houser,  43  Ga.  415;  Zim- 
pleman  v.  Veeder,  98  111.  613; 
Loomis  v.  Stave,  72  Ib.  623;  Valletta 
«.  Mason,  1  Ind.  82;  Slevin  v.  Mor- 
row, 4  Ib.  425;  Jones  v.  Hawkins, 
17  Ib.  550;  Reeves  v.  Plough,  41  Ib. 
204;  Williams  v.  Norton,  3  Kan. 
295;  Dix  v.  Tully,  14  La.  Ann.  456; 
Overlook  v.  Hills,  8  Me.  383;  An- 
droscoggin  R.  R.  Co.  v.  Auburn 
Bank,  48  Ib.  335;  Bowman  t>.Wood. 
15  Mass.  534;  Batchellor  v.  Priest, 
12  Pick.  399;  Hancock  v.  Franklin 
Ins.  Co.,  114  Mass.  155;  Jennison  v. 
Parker,  7  Mich.  355 ;  McLenore  t>. 
Hawkins,  46  Miss.  715;  City  Bank  p. 


Perkins,  4  Bosw.  420;  Nelson  v. 
Wellington,  5  Ib.  178;  Bank  of  Chc- 
nangofl.  Osgood,  4  Wend.  607,  612; 
Wheeler  v.  Newbould,  16  N.  Y.392; 
Wilson  t>.  Little,  2  Ib.  443;  Flagg  v. 
Munger,  9  Ib.  492;  Nelson  v.  Eaton, 
26  Ib.  410 ;  Nelson  v.  Edwards,  40 
Barb.  279;  Farwell  v.  Importers' 
Nat.  Bank,  90  N.  Y.  483,  s.  c.  47  N. 
Y.  Supr.  Ct.  409;  Roberts®.  Thomp- 
son, 10  Ohio  St.  1 ;  Hanna  v.  Hoi- 
ton,  78  Pa.  St.  334;  Bcale  v.  Bank.  5 
Watts,  530;  Lyon  ®.  Huntingdon 
Bank,  12  S.  &  R.  68;  Tarbell  v, 
Sturtevant,  26  Vt.  513;  Hilton  v. 
Waring,  7  Wis.  492 ;  Northwestern 
Ins.  Co.  v.  Insurance  Co.,  40  Ib.  446; 
Union  Nat.  Bunk  v.  Roberts,  45  Ib. 
373;  Foot  v.  Brown,  2  McLean,  369. 
"  Where  promissory  notes  are 
pledged  as  security,  the  transaction 
ex  vi  termini  imports  authority  to 
collect."  Nelson  v.  Wellington,  su- 


THE  DUTIES  OF  THE  PLEDGEE.  121 

by  such  action,  does  not  become  a  trustee  of  the  pledger, 
and  is  not  bound  to  use  more  than  due  diligence  in  the 
prosecution  thereof.1  Nor  will  a  power  of  sale  given  to 
a  pledgee  of  promissory  notes  as  collateral  security,  limit  or 
impair  his  right  to  receive  payment  thereof,  or  upon  de- 
fault, to  compel  satisfaction.*  The  pledgee's  right  of  an 
action  at  law  upon  collateral  notes,  does  not  extend  to  the 
enforcement  of  a  limited  contract  of  guaranty,  separate  and 
independent,  made  by  a  third  party  with  the  pledgor,  rela- 
tive to  the  payment  of  the  securities.8  Under  statutory 
enactments,  giving  a  right  of  action  to  the  real  party  in 
interest,  a  pledgee  of  negotiable  paper,  although  holding 
the  same  unindorsed,  is  entitled  upon  default  to  bring  an 
action  thereon,  and  to  recover.4  The  rule  is  applied  to  the 
assignment  of  a  non-negotiable  note  with  delivery.5  Such 
action  may  be  brought  by  the  pledgee  by  agreement  of  the 
parties  and  at  the  pledger's  request,  the  title  of  the  securi- 
ties still  remaining  in  him,  in  his  own  name,  although  he 
holds  no  title  thereto,  by  proper  indorsement  and  deliv- 
ery.' Nor  is  indorsement  necessary  to  enable  a  pledgee 
to  sue  upon  negotiable  collateral  securities,  where  the 
same  are  payable  to  "  bearer,"  and  may  pass  from  hand  to 
hand.7 

§91.    THE  PLEDGEE,  WITH  TITLE,  ENTITLED  TO  RECOV- 
ER  FACE  OF  COLLATERAL  NOTES. — The   transfer  before 

pra.    "  By  an  assignment  of  collat-  ton,  5  Bosw.  178 ;  Nelson  ®.  Eaton, 

eral  security,  a  privity  in  contract  is  26  N.  Y.  410;   Nelson  v.  Edwards, 

established,  which    invests  the  as-  40  Barb.  279. 

signee  with  the  ownership  of  the  8  National  Bank  v.  Grand  Lodge, 

collateral  for  the  purposes  of  domin-  98  U.  S.  123. 

ion  over  the  debt  assigned.    He  alone  *  White  v.  Phelps,  14  Minn.  271. 

is  empowered  to  receive  the  money  6  Hilton  v.  Waring,  7  Wis.  492. 

to  be  paid  upon  it,  and  to  control  it  •  Lobdell  v.  Merchants'  Bank,  33 

in  order  to  protect  his  rights."   Han-  Mich.  408. 

na  v.  Holton,  supra.  7  Louisiana  State  Bankfl.Gaienne, 

1  Cardin  v.  Jones,  23  Ga.  175.  21  La.  Ann.  555;  Houser  v.  Houser, 

8  Third  Nat.  Bank  v.  Harrison,  10  43  Ga.  415. 
Fed.  Rep.  243;   Nelson  v.  Welling- 


122  NEGOTIABLE    COLLATERAL   SECURITIES. 

maturity  of  a  negotiable  promissory  note,  so  as  to  make  the 
pledgee  a  party,  although  as  collateral  security  for  a  prin- 
cipal indebtedness  less  in  amount  than  the  notes  held  aa 
collateral,  vests  an  absolute  title  in  the  pledgee  in  such  col- 
lateral, irrevocable  except  upon  payment  of  the  principal 
debt.  The  pledgee  is  entitled  to  recover  of  the  parties  to 
such  collateral  note  the  whole  amount  of  its  face,  holding 
any  surplus  for  the  benefit  of  persons  who  are  entitled  to 
it.1  It  is  immaterial  to  the  maker  of  such  collateral  paper 
what  the  pledgee  advanced  upon  the  note,  or  upon  what 
terms  the  pledger  and  pledgee  may  settle.  His  obligation, 
as  expressed  in  the  collateral  security,  is  an  independent 
undertaking,  and  may  be  enforced  by  a  pledgee  advancing 
value  in  good  faith,  without  notice,  free  from  antecedent 
equities.*  The  pledgee  of  negotiable  bonds  is  also  entitled 
to  collect  their  whole  face  value,  applying  the  proceeds  to 
the  payment  of  the  principal  debt,  and  holding  any  surplus 
for  those  to  whom  it  belongs.8  The  pledgee  of  bills  of 
exchange,  properly  indorsed,  upon  the  pledgor  becoming 
insolvent,  may  prove  for  the  full  amount  ;4  and  bills  of 
exchange,  being  offered  for  discount,  and  a  bank  advanced 
a  part  of  the  face  value,  taking  a  guaranty  of  a  third  per- 
son as  additional  security,  such  third  person  is  entitled  to 
sue  the  acceptor  for  the  full  amount  of  the  bill,  subject  to 
the  same  trust  as  to  any  surplus  as  in  other  cases.5  Where, 
upon  the  realization  of  such  collaterals,  a  deficiency  re- 
mains, the  pledgee  may  bring  a  personal  action  against  the 
pledgor,  or  may  sue  upon  the  principal  note.' 

>Tooke  t>.  Newman,  75  111   215  ;  'Tarbell  0.  Sturtevant,  26  Vt.  513; 

McLenore  v.  Hawkins,  46  Miss.  715 ;  Witkins  v.  Jeffers,  30  Ga.  153. 

Jones  v.  Hicks,  52  Ib  582;  Knights  'Jerome  v.  McCarter,  94  U.  8. 

c.  Palmer,  3  Pick.  185  ;  Thayer  v.  739 ;  Hancock  t>.  Franklin  Ins.  Co., 

Mann,  19  Pick.  536;  Tarbell  tJ.  Slur-  114  Mass.  155. 

tevant,  26  Vt.  513 ;  Plant's  Manuf.  *  Ex  pane  Newton,  L.  R.  16  Ch. 

Co.  v.  Favey,  20  Wis.  200.    Where  D.  330  ;  In  re  Commersal,  Ib.  187; 

the  money  obtained  was  misapplied  ex  parte  Phillips,  1  M.  &  D.  232. 

by  an  agent  of  the  pledgor.     City  *  Reid  v.  Furnival,  1  Cr.  &  M.  538. 

Bank  v.  Perkins,  4  Bosw.  420.  •  Faulkner  t>.  Hill,  104  Mass.  188, 


THE  DUTIES  OF  THE  PLEDGEE.  123 

§92.  LIMITATIONS  IN  CERTAIN  CASES  UPON  THE 
PLEDGEE'S  RECOVERY. — Where  negotiable  promissory  notes, 
pledged  as  collateral  security,  are  accommodation  paper 
without  consideration,  or  subject  to  an  equitable  set-off,  or, 
in  cases  of  misappropriation,  as  between  the  makers  and 
payees  and  indorsers  thereof,  and  the  collateral  securities 
are  of  greater  amount  than  the  loan  represented  by  the 
principal  evidence  of  indebtedness,  the  recovery  of  the 
pledgee  against  the  makers  upon  an  action  thereon,  is  lim- 
ited to  the  amount  of  his  advances.  The  pledgee  in  such 
cases  of  fraud  is  a  holder  for  value  of  the  collateral  note, 
as  against  the  makers  of  such  paper,  to  the  extent  only  of 
his  interest  at  the  time  he  acquires  the  title,  or  has  notice  of 
the  defenses  to  it.1  A  third  party  who  has  executed  nego- 
tiable paper,  so  as  to  charge  persons  dealing  with  it  with 
notice  that  it  is  to  be  used  as  collateral  security  may  show, 
upon  suit  thereon  by  a  pledgee,  the  identity,  nature  and 
amounts  of  the  demands  for  which  it  was  authorized  to  be 
pledged.*  The  recovery  of  a  pledgee  of  bills  of  exchange 
where  there  had  been  a  failure  to  indorse  them  so  as  to  pass 
the  legal  title,  was  limited  to  actual  advances.8  The  same 
rule  as  to  recovery  was  applied  where  negotiable  bonds  had 
been  pledged  by  a  corporation  as  collateral  security  for  the 
payment  of  its  obligations,  the  pledgee,  in  an  action  against 
the  company  upon  his  collateral  securities,  was  restricted  to 
the  amount  of  the  debt  they  were  given  to  secure.4 

1  Stoddard  v.  Kimball,  6  Cush.469;  equitable  set  off  against  the  insol- 

Chicopee  Bank  v.  Chapin,  8  Met.  40;  vent  payee.     Nor  was  the  pledgee 

Fisher  v.  Fisher,98  Mass.  303;  Stalk-  allowed  attorney's  fees  in  prosecut- 

er  T.  McDonald,  6  Hill,  93;   Young  ing  the  action,  although  occasioned 

v.  Lee,  12  N.  Y.  551 ;   Huff  v.  Wag-  by  the  maker    attempting  a  com- 

ner,  63  Barb.  215 ;    Farwell  v.   Im-  plete  defense  to  the  note.    Bank  v, 

porters'  Nat.  Bank,  90  N.  Y.  483.  Hemingway,  34  Ohio  St.  381. 

The  pledgee  of  a  negotiable  note,  *  Garton  v.  Union  City  Nat.  Bank, 

having  the   legal   title  by  indorse-  34  Mich.  229. 

ment,  was  limited  in  his  recovery  *  Ex  parte  Phillips,    1  M.  &  D. 

upon  an  action  thereon  against  «the  232. 

maker,  to  the  amount  of  his  debt,  4  Jesup  v.  Bank,  14  Wis.  331. 
where  the  latter  was  entitled  to  an 


124  NEGOTIABLE  COLLATERAL  SECURITIES. 

§93.  THE  PLEDGEE'S  RECEIPT  AND  COLLECTION  OP 
SHORT  COLLATERAL  NOTES. — A  pledgee,  holding  negotiable 
promissory  notes  or  bills  of  exchange  maturing  at  a  day 
earlier  than  the  principal  obligation,  is  entitled  to  receive 
the  money  (being  a  party  to  the  instrument)  or,  in  event  of 
default,  upon  demand,  may  proceed  to  enforce  payment  by 
action  against  the  parties  liable  thereon.  The  authority  of 
the  pledgee  as  to  the  money  thus  received,  which  takes  the 
place  of  the  collateral  securities  theretofore  held,  extends, 
until  the  maturity  of  the  principal  note,  only  to  the  reten- 
tion of  the  same.1  The  pledgee  has  no  right  to  apply  the 
proceeds  of  the  notes  held  as  collateral  security  in  payment 
of  the  loan  until  it  is  due  and  payable.  Bo^h  parties  to  the 
contract  of  pledge  are  entitled,  the  one  to  receive,  and  the 
other  to  pay,  at  the  maturity  of  the  principal  note,  and  are 
not  compellable  to  do  so  before,  or  by  installments.  Before 
the  money,  so  received,  can  be  applied  by  the  pledgee  in 
satisfaction  of  the  principal  debt,  in  the  absence  of  agree- 
ment, default  in  the  payment  thereof  must  have  occurred.5 
Standing  in  the  place  of  the  collateral  security,  the  pledgee, 
holding  the  proceeds  of  short  negotiable  collateral  notes, 
pledged  to  secure  the  payment  of  a  demand  note,  is  not 
entitled  to  apply  them  in  payment  until  demand.3  The 
pledgee,  in  accounting  upon  settlement  with  the  pledger  for 
his  collections  upon  short  collateral  notes,  is  required  to 
credit  such  sums  only  as  he  was  able  legally  to  collect.4  A 
negotiable  promissory  note  of  a  third  party  intrusted  to  a 
broker  for  sale,  was  fraudulently  pledged  with  other  secur- 
ities, for  a  loan,  and  the  note  maturing  before  the  loan 
became  due,  the  maker  was  obliged  to  pay  its  full  value  to 


1  Farwell  v.  Importers'  etc.  Nat.  •  Wilson  v.  Little,  2  N.  Y.   443-, 

Bank,  90  N.  Y.  483,  490;  8.  c.  47  N.  Lewis  v.  Varnum,  12  Abb.  Pr.  305; 

Y.  Supr.  Ct.  409;  Garlick  v.  James,  Garlick  v.  James,  12  Johns.  148. 

12  Johns.  148;  Jones  «.  Hawkins,  17  *  Lewis  t>.  Varnum,  12  Abb.  Pr. 

Ind.  550;  Wheeler  v.  Newbould,  16  305. 

N.  Y.  362;  Nelson  «.  Eaton,  26  Ib.  «  Blouin  v.  Hart,  30  La.  Ann.  714. 
410,  417. 


THE   DUTIES   OF   THE   PLEDGEE.  125 

the  pledgee.  The  maker  gave  notice  to  the  pledgee  of  the 
misappropriation  of  his  note,  and  claimed  a  lien  on  any  sur- 
plus arising  from  the  sale  of  other  securities  immediately 
upon  notice  of  the  fraud.  He  received  so  much  of  such 
surplus  arising  from  the  other  securities  as  equaled  the 
amount  of  his  payment.1 

§94.  THE  PLEDGEE'S  DUTY  AS  TO  UNCOLLECTIBLE' 
COLLATERAL  PAPER. — If  a  negotiable  promissory  note,  in- 
dorsed as  collateral  security,  proves  to  be  uncollectible,  the 
duty  of  the  pledgee  is  to  return  the  same  to  the  pledgor. 
The  pledgee  is  not  required  to  bring  a  useless  action  to 
enforce  the  payment  of  such  paper,  but  may  at  once  upon 
default,  sue  upon  the  principal  note.*  No  presumption  of 
payment  of  the  principal  debt,  however,  arises  from  the 
retention  of  collateral  securities,  the  makers  of  which  are 
notoriously  insolvent.3  Although  a  pledgor  may  insist  upon 
active  measures  to  collect,  if  he  anticipates  the  insolvency  of 
parties  liable  on  collateral  securities,  the  right  is  only  en- 
forced upon  equitable  terms.4  A  pledge  by  one  of  several 
joint  debtors,  all  insolvent,  of  a  note  of  a  third  person,  also 
insolvent,  as  collateral  security,  without  any  restriction, 
confers  upon  the  pledgee  an  implied  authority  to  release  the 
maker  of  such  collateral  note  upon  the  payment  of  a  sum 
less  than  its  face.6 


§95.  THE  USE  OF  OVER-DUE  NEGOTIABLE  PAPER  AS 
COLLATERAL  SECURITY. — The  pledgee  of  a  promissory  note 
of  a  third  person,  receiving  the  same,  after  dishonor,  as  col- 
lateral security,  is  bound  only  by  an  implied  promise  of  the 


1  Farwell  v.  Importers'  etc.  Bank,  4Lamberton  v.  Windom,  12  Minn. 

90  N.  Y.  483.  232,  241;  Hayes  v.  Ward,  4  Johns. 

s  Clark  v.  Young,  1  Cranch,  181;  Ch.  123. 

Wood   v.  Matthews,   73   Mo.    479;  *  Exeter  Bank  v.  Gordon,  8  N.  H. 

Smith  v.  Felton,  85  Ind.  223.  66,  82. 

«  Powell  v.  Henry,  27  Ala.  612. 


126  NEGOTIABLE   COLLATERAL  SECURITIES. 

use  of  ordinary  care  and  diligence  in  the  collection  thereof.1 
The  parties  to  the  contract  of  pledge  of  such  paper  may 
agree  as  to  whether  collection  of  them  by  action  should  be 
attempted,  or  upon  further  default  in  payment,  a  sale  should 
be  made  thereof.*  Generally,  the  pledgee  holding  dishon- 
ored paper,  after  an  unsuccessful  attempt  to  secure  payment 
by  the  parties  thereto,  is  entitled  to  sell  the  same,  after 
reasonable  notice  to  the  pledger,  at  public  sale.8  The 
pledgee,  without  consent,  is  not  at  liberty  to  extend  the 
time  of  payment  of  such  paper.4  A  pledge  of  a  bill  of  ex- 
change, dishonored,  but  which  had  been  paid  and  taken  up 
by  the  pledger,  was  supported,  although  made  by  delivery 
merely,  as  against  a  mortgage  covering  the  bills  and  other 
property.5  The  recovery  of  the  pledgee  of  over-due  paper 
is  restricted,  where  received  as  collateral  security  for  a  debt 
of  less  than  its  face,  to  the  amount  of  the  debt,  unless  the 
pledgee,  as  a  party  to  the  paper,  be  liable  to  the  pledgor  or 
some  third  person  for  the  difference.  Upon  proof  of  specific 
payments  to  the  pledgor,  before  transfer,  to  an  amount 
exceeding  the  difference  between  the  debt  and  the  face  value 
of  the  paper,  the  pledgee  can  only  recover  the  balance  due, 
although  less  than  the  debt.* 

Past  due  commercial  paper,  negotiated  as  collateral 
security,  is  subject  in  the  hands  of  the  pledgee  to  all  de- 
fenses and  equities  which  existed  and  attached  to  the  paper 
itself  in  the  hands  of  the  original  holder,  but  not  to  equities 


1  Craig  t>.  Parkis,  40  N.  Y.  181;  *  Rice  v.  Benedict,  19  Mich.  132; 

Ward®.  Morgan,  5 Sneed, 59; Noland  Mullen    v.   Morris,    2    Pa.   St.   85; 

e.  Clark,  10  B.  MOD.  239;.Lindley  v.  Whipple  v.  Blackington,   97  Mass. 

Chase,  104  Mass.  253;   Wnkeraan  v.  476;  Union  Trust  Co.  «.  Rigdou,  93 

Goudy,  10  Bosw.  408;  Rice  v.  Bene-  111.  458. 

diet,  19  Mich.  132.    The  pledgee  has  '  Potter  v.  Thompson.  10  R.  1. 1.  8. 

no  right  to  determine  for  himself  4  Wakeman  v.  Goudy,    10  Bosw. 

whether  the  collateral  note  is  collect-  408. 

ible,    It  is  incumbent  upon  him  to  '  Sanders  t>.    Davis,  13   B.   Mon. 

ascertain  the  fact  by  a  resort  to  the  432. 

ordinary  process  of  the  law.    Craig  •  Bond  v.  Fitzpatrick,  8  Gray  536. 
t>.  Parkis,  supra. 


THE  DUTIES   OP  THE  PLEDGEE.  127 

or  defenses  arising  out  of  collateral  matters.1  A  set-off 
against  the  payee  is  no  defense  against  the  holder  of  a  prom- 
issory note,  transferred  after  maturity  as  collateral  secur- 
ity.* But  the  indorsee  of  a  negotiable  note  receiving  the 
same  dishonored  is  subject  to  the  equities  arising  from  a 
misappropriation  by  the  payee  of  collateral  securities  given 
for  its  payment,  and  of  the  proceeds  of  which  only  a  part  was 
credited  upon  the  note,  in  seeking  to  collect  the  same  from 
the  maker.8  Where  such  negotiable  instruments  are  sold 
or  pledged,  after  maturity,  by  one  who  is  not  their  owner, 
and  who  in  fact  is  not  authorized  to  pledge  the  same, 
the  pledgee  acquires  no  title  or  rights  thereto,  and  is  not 
protected  as  against  the  claims  of  the  true  owner,  who  has 
been  defrauded.4 

§  96.  PLEDGEE  CANNOT  COMPROMISE  NOR  SURRENDER 
COLLATERAL  SECURITIES. — The  pledgee  of  negotiable  se- 
curities as  collateral  security  is  not  permitted,  in  the  ab- 
sence of  special  agreement,  in  his  dealings  with  the  secur- 
ities, to  accept,  anything  less  in  discharge  or  satisfaction 
of  them,  from  the  parties  bound,  than  the  face  value  of  such 
paper.  Any  trade,  or  compromise,  or  rebate  made  by  the 
pledgee  with  the  maker  or  other  parties  to  such  collaterals, 
whereby  the  same  are  surrendered  for  less  than  the  face 
value  thereof  is  a  breach  of  the  duty  of  the  pledgee  and  is 
not  sustained.5  Any  arrangement  whereby  the  securities 
are  transferred  for  less  than  is  due  thereon  to  a  party  already 

1  Simpson  ».  Hall,  47  Conn.  417;  65;  Foley  ®.  Smith,;6  Wall.  493;  Ver- 

Robinson  v.  Lyman,  10  Ib.  30;  Fair-  milye  v.  Adams,  21  Ib.  143. 

child  ».  Brown,  11  Ib.  49.  6  Wood  v.  Matthews,  73  Mo.  479 ; 

8  Wilkinson  ».  Jeffers,  30  Ga.  153.  Garlick  v.  James,  12  Johns.  146;  De- 

•  Creech  v.  Byron,  115  Mass.  324.  puy  v.  Clark,  12  Ind.  427;  Hawks  v. 

*  btern  v.  Germania  Bank,  34  La.  Hinchcliffe,    17  Barb.    492;    Union 
Ann.  1119;  Henderson  v.  Case,  31  La.  Trust  Company  v.  Rigdon,  93  111. 
Ann.  215;  Bird  v.  Cockrem,  28  Ib.  471;    Zimpleman  v.  Veeder,  98  Ib. 
70;  Davis®.  Bradley,  26  Ib.  555;  Civ.  613;    Stevens  v.   Hulbert  Bank,  31 
Code,  Lou.  2452 ;  Fowler  v.  Brantly,  Conn.  147 ;  McLenoro  v.  Hawkins, 
14  Pet.  318;  Andrews  v.  Pond,  13  Ib.  46  Miss.  715. 


128  NEGOTIABLE   COLLATERAL  SECURITIES. 

bound  for  the  full  amount,  is  a  compromise,  notwithstand- 
ing a  power  of  sale  has  been  given  by  the  contract  of 
pledge.1  But  a  compromise  is  sustained  where  it  is  made 
upon  the  agreement  of  all  parties,  even  where  made  for  a 
less  sum  than  that  authorized,  if  a  credit  be  given  on  the 
principal  note  for  the  proper  amount,  and  where  this  is 
done,  the  pledgee  may  collect  the  balance  of  the  principal 
debt.*  Where  one  of  several  joint  insolvent  debtors  has 
pledged  to  the  creditor  the  note  of  a  third  person,  also 
insolvent,  as  collateral  security,  without  any  restriction, 
the  creditor  has  an  implied  authority  to  release  the  maker 
upon  his  paying  part  of  the  sum  due  on  the  collateral  note.1 
And  cases  may  occur  where  a  debt  is  not  well  secured  and 
the  pledgee  may  take  less  than  is  due  and  surrender  the 
note.  But  this  cannot  be  done  where  the  debt  is  well 
secured.4 

Where  negotiable  promissory  notes  held  as  collateral 
security,  are  fraudulently  surrendered  to  the  maker  by  the 
pledgee,  at  a  sum  considerably  beloW  their  face  value,  the 
pledgor  has  his  election  to  bring  his  action  against  the 
maker  to  recover  the  residue  of  the  face  of  the  notes  so 
surrendered,  or  against  the  pledgee  in  tort  for  disposing  of 
the  collateral  notes  in  a  fraudulent  manner.  In  such  cases 
the  pledgor  may  recover  as  damages  the  face  value  of  such 
securities,  subject  to  the  equitable  set-off  of  the  principal 


1  Union  Trust  Co.  v.  Rigdon,  93  Where  a  collateral  note  was  sold  un- 
111.  471.    An  absolute  power  of  sale,  der  a  power  of  sale,  the  maker  there- 
without  notice,  of  the  pledged  col-  of  but  not  the  pledger  being  notified, 
lateral  paper  was  given,   upon  de-  it  was  a  compromise,  and  not  such  a 
fault,  and  the  pledgee  transferred  the  sale  as  contemplated  under  the  con- 
fame,  which  had    matured    in  his  tract  of  pledge.    Zimpleman  v.  Vee- 
hands,  to  the  maker  thereof  for  less  der,  98  111.  613. 
than  its  face,  and  for  an  amount  pre-  *  Thayer  ».  Putnam,  12  Met.  297. 
cisely  sufficient  to  pay  the  principal  '  Exeter  Bank  v.  Gordon,  8  N.  H. 
debt.    Such  a  transaction  was  a  com-  66,  82. 

promise,  and  not  a  sale,  even  under  4  Zimpleman  t.  Veeder,  98  111.613. 
the    extensive  ;  powers    conferred. 


TflE   DUTIES    OP   THE   PLEDGEE.  129 

debt,  if  unpaid.1  The  pledgee  may  show  in  defense,  that 
the  collateral  securities  were  accommodation  paper,  for 
which  no  value  was  paid,  or  that  there  was  a  legal  defense 
to  the  notes  so  surrendered.*  Where  a  valid  delivery  had 
been  made  of  the  principal  debt,  with  the  collateral  se- 
curities, to  a  third  party,  and  the  latter  wrongfully  sur- 
rendered the  collateral  notes  to  the  maker  thereof,  the  first 
pledgee  is  not  liable  in  trover  for  such  conversion." 

§  97.    COLLATERAL  SECURITIES    CANNOT   BE   APPLIED 

WITHOUT    AGREEMENT   TO   OTHER   DEBTS. —  In    cases   where 

negotiable  securities  have  been  pledged  for  the  payment  of 
a  particular  debt  or  obligation,  the  pledgee  is  not  permitted, 
in  the  absence  of  a  special  agreement,  to  retain  the  same, 
after  payment  or  discharge  of  such  debt  or  obligation,  as 
collateral  security  for  other  special  or  general  indebted- 
ness of  the  debtor.4  Where,  however,  the  pledger,  after 
depositing  collateral  security  for  a  specific  debt,  less  in 
amount  than  the  value  of  such  collateral  paper,  agrees  that 
the  surplus,  if  any,  arising  from  the  sale  or  collection  there- 
of shall  be  a  pledge  for  other  debts,  such  contract  is  en- 
forced. In  the  application  of  the  proceeds  of  such  col- 
laterals, the  money  is  applied  first  to  the  debts  of  the 
oldest  standing.6  Where  a  pledge  of  negotiable  securities 
had  been  made  by  a  bank  on  one  account,  and  subsequently 

1  Garlick  v.  James,  12  Johns.  146;  Bank  v.  Leland,  5  Met.  259;    Han- 

Depuy  v.  Clark,  12  Ind.  427;  Union  cock  ®.  Franklin  Insurance  Co.,  114 

Trust  Co.  v.  Rigdon,   93  111.   471;  Mass.  155;  Hathaway  v.  Fall  River 

Hawks  v.  Hinchcliffe,  17  Barb.  492.  Nat.  Bank,  131  Ib.  14;  Chester  «. 

*  Union  Trust  Co.  ®.  Rigdon,  supra.  Wheelwright,  15  Conn.  562;  Teuto- 

*  Goss  v.  Emerson,  23  N.  H.  38.  nia  Nat.  Bank  v.  Loeb,  27  La.  Ann. 
4  James' App.,  89  Pa.  St.  54;  Buck-  110;  Latham  v.  Chartered  Bank  of 

ley  t>.  Garrett,  60  Ib.  333;   Selden  v.  India,  L.  R.  17  Eq.  205;  Wyckoff  o. 

National  Bank,  69  Ib.  424 ;  Wilmer-  Anthony,  90  N.  Y.  442;  Talmadge 

ding  «.  Hart,   Hill  &  D.  Supp.  305;  v.  Third  Nat.  Bank,  91  N.  Y.  531. 
Robinson®.  Frost,  14  Barb.536; Lane          8  Jones  v.  Benedict,  83  N.  Y.  79, 

«.    Bailey,  47  Ib.  395;    Duncans  88;  Pattison  v.  Hull,  9  Cow.  747,  775 

Brenr-an,  83  N.  Y.  487;   Jarvis  v.  n.  b. 
Rogers,    15    Mass.    397;    Neponset 
9 


130  NEGOTIABLE  COLLATERAL   SECURITIES. 

another  pledge  of  other  securities  was  made  on  another 
account,  and  the  pledgor,  after  returning  the  consideration 
for  the  second  pledge,  became  bankrupt,  and  some  of  the 
securities  given  on  the  first  occasion  proved  worthless,  the 
pledgee  was  allowed  to  appropriate  certain  of  the  collaterals 
pledged  on  the  second  transaction  in  order  to  make  himself 
whole  on  the  first,  as  against  an  assignee  in  bankruptcy 
seeking  to  set  aside  the  application  of  the  securities  by  a 
summary  objection  to  proof  by  the  pledgee  of  an  inde- 
pendent debt  due  to  him  arising  out  of  a  deposit  account.1 

§  98.  «»  MARSHALLING  SECURITIES  "  AS  APPLIED  TO 
COLLATERAL  SECURITIES. — The  election  of  the  pledgee, 
holding  several  collateral  securities  for  the  principal  debt, 
as  to  which  of  the  said  securities  shall  be  resorted  to,  in 
order  to  enforce  payment  of  the  original  debt,  is  subject  to 
the  equitable  principle  known  as  "  marshalling  securities." 
By  this  rule  a  creditor  having  a  lien  upon  two  funds  for 
payment  of  his  debt,  and  a  subsequent  creditor  alien  upon 
one  only  of  such  funds,  the  former  is  required  to  exhaust 
his  remedy  against  the  fund  which  is  especially  given  for 
his  security  before  resorting  to  that  in  which  the  subsequent 
creditor  is  interested.  The  rule,  however,  is  never  en- 
forced in  cases  where  it  would  cause  an  injury  or  damage  to 
a  creditor  holding  such  liens  upon  separate  funds,  or  would 
work  injustice  to  other  parties.*  The  rule  was  applied 
where  a  merchant  had  forwarded  his  note  to  a  broker  for  sale, 
and  the  proceeds,  less  commissions,  remitted.  The  broker 

1  In  re  McVey,  13  Fed.  Rep.  448.  ternational  Ins.  Co.,  L.  R.  2  Ch.  D. 

*  Cheeseborough     v.     Millard,    1  476 ;  Heyman  v.  Dubois,  L.  R.  13  Eq, 

Johns.  Ch.  409,  413;  Door  v.  Shaw,  158;  in  re  Mower's  Trusts,  L.  R.  8 

4  Johns.  Ch.  17;  Wiggin  v.  Dorr,  3  Eq  110;  Merchants'  Bank  v.  Maud, 

Sumn.  310;  Greenwood  v.  Tyler,  1  R.  18  W.R.312;  Farquharson  v.  Flower, 

&  M.  187;  Morrison  v.  Kuntz,  15  111.  L.  R.  8  Ch.  D.  109;  Tomkinso.  Colt- 

193;  Dumont  v.  Fry,  13  Fed.  Rep.  hurst,  L.  R.  1  Ib.  626;  Trumper  v. 

423;  Hazard®.  Fiske,  83  N.  Y.  287;  same,  L.  R  14  Eq.   295;  ex  parte 

ex  parte  Kendall,  17  Ib.  520;  Aid-  Alston,  L.  R.  4  Ch.  168 
rich  v.  Cooker,  8  Ves.  388;  in  re  In- 


THE  DUTIES   OF  THE   PLEDGEE.  131 

fraudulently  pledged  the  note,  with  other  collaterals,  to  a 
bank,  to  secure  a  loan  to  himself,  of  which  the  merchant  re- 
ceived nothing.  The  merchant,  learning  of  the  misappro- 
priation, gave  notice  to  the  bank,  and  claimed  to  be 
subrogated  to  any  surplus  arising  from  other  securities  held 
by  it,  after  payment  of  the  loan.  Subsequently,  and  before 
the  maturity  of  the  loan,  the  note  fell  due,  and  was  paid 
without  suit.  Upon  realizing  the  other  securities  the  bank 
held  a  surplus  in  its  hands.  The  merchant  was  entitled  to 
be  paid  from  such  surplus,  his  voluntary  payment  not  affect- 
ing his  right  of  recovery.1 

§  99.  SUB-PLEDGEES  OP  COLLATERAL  SECURITIES  SUB- 
JECT TO  LIKE  RULES. — The  like  rule  is  applied  to  sub- 
pledgees  of  collateral  securities.  Where  such  sub-pledgee 
holds  securities  belonging  to  several  persons  which  are 
wrongfully  sub-pledged  by  the  pledgee  thereof,  he  is  re- 
quired to  proceed  pari  passu  in  the  application  of  the 
securities  to  the  payment  of  the  debt.  A  sacrifice  of  the 
securities  of  any  one  pledger  is  not  permitted ;  and  in  the 
event  that  the  sub-pledgee  shall  have  sold  the  securities  of 
of  any  one  pledger,  realizing  sufficient  to  pay  off  all  of  the 
liabilities  of  the  pledgee,  and  leaving  the  other  securities  in 
his  hands,  a  court  of  equity  will,  at  the  suit  of  the  pledgor 
whose  securities  have  been  sold,  order  the  remaining  securi- 
ties to  be  disposed  of  and  the  proceeds  so  applied  as  to 
secure  the  payment  of  the  debt  in  equitable  proportions.* 
A  pledged  negotiable  bonds  to  B  for  value,  who  sub-pledged 
them  to  C  for  value,  and  C  again  sub-pledged  them  to  D,  a 
trust  company,  together  with  other  collaterals,  fora  specific 
loan,  other  loans  being  due  from  C  to  D,  secured  by  col- 
laterals. C  became  insolvent,  and  B  redeemed  the  securi- 
ties of  A  by  paying  D  their  full  market  value.  Subse- 
quently upon  a  sale  by  D  of  the  other  collateral  securities 

1  Farwell  v.  Importers'  Nat.  Bank,      Abb.  N.  C.  381,  which  is  approved  in 
90  N.  T.  483.  Farwell  v.  Importers'  Nat.   Bank, 

4  Gould  v.  Central  Trust  Co.,  6      supra. 


132  NEGOTIABLE  COLLATERAL  SECURITIES. 

pledged  for  the  specific  loan,  a  surplus  was  left  after  paying 
the  same,  although  all  the  securities  held  by  D  were  not 
equal  to  the  amount  of  the  loans.  D,  under  the  equitable 
doctrine  of  marshalling  of  assets,  was  required  to  apply  the 
other  securities  held  for  the  specific  loan  to  its  satisfaction 
before  resorting  to  the  securities  of  A,  and  as  upon  such  ap- 
plication a  surplus  remained  in  D's  hands,  the  same  was  paid 
to  the  pledgee.1 

§  100.  APPLICATION  OP  PAYMENTS  AND  INTEREST  ON 
COLLATERAL  SECURITIES. — Where  collateral  securities  are 
received  by  the  pledgee  for  a  specific  loan  or  debt,  under  a 
contract  giving  the  pledgee  the  power  upon  default  of  con- 
verting such  securities  into  available  funds,  the  law,  upon 
such  realization,  makes  an  application  of  the  money  in 
the  payment  at  maturity  of  the  loan  or  debt.  Upon  such 
application,  the  debt  or  loan  is  paid,  so  that  no  action 
thereon  can  be  maintained  against  the  pledger.  For  any 
surplus  remaining  in  the  hands  of  the  pledgee  after  satisfac- 
tion of  the  debt,  the  pledgor  has  his  action  as  for  money 
had  and  received.*  Where  the  principal  note  is  by  its 
terms  payable  by  instalments,  some  of  which  are  over-due, 
the  holder,  may,  in  the  absence  of  special  directions  from 
the  pledgor,  apply  the  proceeds  of  collateral  securities  in 
payment  of  such  over-due  instalments  as  he  may  desire.* 

The  pledgee  of  negotiable  instruments,  such  as  bonds  or 
long-time  notes,  bearing  interest,  is  entitled  to  collect  in- 
terest accruing  thereon,  and  to  give  proper  receipts, 
accounting  to  the  pledgor  therefor  upon  payment  of  the 
debt  at  maturity.4  Such  collections  upon  collateral  securi- 
ties, in  the  case  of  promissory  notes,  indorsed  thereon 
from  time  to  time,  are  deemed  as  payments  upon  the 

1  Gould  v.  Farmers'  L.  &  T.  Co.,  *  Saunders  t>.  McCarthy,  8  All.  42. 

23  Hun.  322.  *  Androscoggin  R.  R.  Co.  v.  Au- 

»  Hunt  v.  Nevers.15  Pick.  500,  504  burn  Bank,  48  Me.  335;  Whipple  v. 

(Shaw,  C.  J.);  In  re  Litchfield  Bank,  Blackington,  97  Mass. 476;  Hancock 

28  Conn.  575.  v.  Franklin  Ins.  Co.,  114  Ib.  155. 


THE  DUTIES   OP   THE   PLEDGEE.  133 

original  note  or  other  evidence  of  indebtedness  by  the 
principal  debtor  at  the  time  such  funds  are  received,1  and 
operate  as  a  stay  to  the  running  of  the  statute  of  limita- 
tions on  the  original  debt.*  The  pledgee  is  chargeable 
with  interest  where  he  uses  the  money,  so  collected,  for  his 
own  purposes.1  It  is  not  a  conversion  of  pledged  securities, 
•where  a  railroad  company  having  pledged  its  own  bonds  as 
collateral  security,  the  pledgee  cut  therefrom,  and  collected 
the  interest  coupons  as  they  became  due.  The  collection 
of  such  dividends  is  properly  within  the  powers  of  the 
pledgee.4 

§   101.      THE  STATUTE   OF  LIMITATIONS,  AS  APPLIED   TO 

COLLATERALS. — The  statute  of  limitations  defeating  simply 
the  remedies  upon  a  debt,  does  not  operate  in  law  as  a  dis- 
charge of  the  debt  itself  which  remains,  so  that,  where 
negotiable  instruments  have  been  deposited  as  col- 
lateral security  for  the  payment  of  a  loan  or  debt,  the 
pledgee  is  entitled  to  retain  possession  of  the  same  as  against 
the  pledgor  notwithstanding  the  statute  of  limitations  might 
be  pleaded  to  an  action  on  the  original  note.8  Under  the 
Louisiana  code,  so  long  as  the  pledgee  retains  possession  of 
collateral  securities,  prescription  or  limitation  does  not  run 
against  a  negotiable  promissory  note  or  other  evidence  of 
debt.6  A  payment  made  to  the  pledgee  by  a  third  party  on 
a  note  held  as  collateral  security,  made  without  authority  of 
the  pledgor,  and  without  any  new  promise  from  him,  does 
not  stop  the  running  of  the  statute  as  against  the  principal 
evidence  of  indebtedness.7  A  pledgee  re-delivered  a  note 

1  Whipple  v.  Blackington,97Mass.  5  Chouteau  v.  Allen,  70  Mo.  290, 

476;    Haven  v.  Hatheway,  20  Me.  341. 

345 ;  Porter  v.  Blood,  5  Pick.  54.  •  Blauc  v.  Hartzog,   23  La.  Ann. 

8  Whipple  t>.  Blackington,  supra.  199 ;  Police  Jury  v.  Duralde,  22  Ib. 

1  Morgan  v.  Mechanics'  Banking  107;  Citizens'  Bank  v.   Knapp,    Ib. 

Assn.,  19  Barb.  584.  117. 

4  Androscoggin  R.  R.  Co.  «.  Au-  '  Harper  v.  Fairley,  53  N.  Y.  443. 
burn  Bank,  supra. 


of  an  insolvent  person  to  the  pledgor,  upon  an  agreement 
that  anything  received  thereon  should  be  credited  on  the 
debt,  and  the  pleclgor  collected  a  dividend,  as  agent  of 
the  pledgee,  handing  over  the  proceeds,  together  with  the 
note,  on  the  same  day.  The  running  of  the  statute  was 
stopped  by  such  payment.1 

§  102.  PRODUCTION  AND  RETURN  OF  COLLATERALS  ON 
PAYMENT  OR  TENDER  OP  DEBT. — Upon  payment  or  tender 
of  the  debt  the  pledger  is  entitled  to  a  return  of  the  col- 
lateral securities  which  he  has  deposited  with  the  pledgee,* 
but  a  mere  offer  to  pay,  without  an  actual  tender,  is  not  suffi- 
cient,8 and  a  tender  having  been  made,  it  must  be  kept 
good  where  suit  is  brought  by  paying  the  same  into  court.4 
Upon  a  demand  for  payment  of  a  promissory  note  made 
upon  an  indorser  thereof,  the  note  containing  a  statement 
that  collaterals  had  been  deposited  with  authority  to  the 
pledgee  to  sell,  without  notice,  in  case  of  non-payment,  the 
indorser  demanded  of  the  notary  a  return  of  the  collaterals 
upon  payment,  which  he  tendered.  The  notary,  failing 
to  produce  the  same,  the  indorser  was  discharged,  as  to  con- 
stitute a  valid  demand  the  collaterals  must  be  produced  or 
had  in  readiness  to  be  surrendered  on  payment.8  Where 
promissory  notes  secured  by  mortgage  were  pledged  as  col- 
lateral security  for  a  loan,  and  upon  default  in  payment  of 
the  loan  the  pledgee  foreclosed  the  mortgage,  the  only  relief 
of  the  pledger,  after  tender  of  the  amount  due,  and  a  de- 
mand for  the  return  of  his  collateral  securities,  is  in  equity, 
an  action  for  trover  not  being  sustainable.' 

1  Whipple    v.    Blackington,     97         *  Lewis  v.   Mott,  86  N.  Y.  402 ; 

Mass.  476.  Strong  v.  Blake,  46  Barb.  222;  Bate- 

»  Bank  of  Rutland??.  Woodruff,  84  man  v.  Poole,   15  Wend.  637;    Ed- 

Vt.  89;  Hale  t>.  Rider,  5  Cush.  231;  mondson  v.  McLeod,  16  N.  Y.  543. 
Spalding  v.  Bank,  9  Pa.  St.  28 ;  Stu-         *  Smith  v.  Felton,  85  Ind.  223. 
art  v.  Bigler,  98  Ib.   80;    Lewis  t>.         •  Ocean  Nat.  Bank  v.  Faut,  50  N. 

Mott,  86  N.  Y.   402 ;   Ocean    Nat.  Y.  474. 

Bank  «.  Faut,  50  Ib.  474 ;   Whipple         •  Rice  «.  Dillingham,  73  Me.  59. 
t>.  Blackington,  97  Mass.  476. 


THE  DUTIES  OF  THE  PLEDGEE.  135 

§  103.  THE  PLEDGEE  NOT  REQUIRED  TO  KEEP  IDEN- 
TICAL BONDS. — The  pledgee  of  negotiable  coupon  bonds, 
receiving  the  same  as  collateral  security  for  a  loan,  or  having 
purchased  the  same  upon  margins  for  a  principal,  holding 
the  bonds  as  security  for  advances  and  charges,  is  not  per- 
mitted to  speculate  in  such  bonds  while  so  held.  Such 
bonds  are  like  shares  of  stock  in  an  incorporated  company, 
without  "ear-marks,"  and  in  the  absence  of  a  special  con- 
tract by  the  parties  that  the  pledgee  shall  retain  the  identi- 
cal bonds,  the  duty  of  the  pledgee  is  regarded  as  satisfied 
so  long  as  he  always  retains  a  similar  number  of  like  bonds 
in  his  possession,  so  that  upon  payment  of  the  debt  at  any 
time  and  at  maturity,  the  collateral  securities  may  be  re- 
turned to  the  pledger.1  Where  bonds  so  held  as  security 
have  fluctuated  very  greatly  in  value,  and  upon  tender,  other 
like  bonds,  then  become  worthless,  are  offered,  it  is  neces- 
sary for  the  pledgee  to  show  he  has  always  retained  a  suffi- 
cient number  of  like  bonds  to  meet  his  obligations  under 
the  contract  of  pledge,  non  constat,  that  he  sold  the  bonds 
when  they  were  of  value,  and  has  re-purchased  them  since 
their  depreciation.1 

1  Levy  D.  Loeb,  85  N.  Y.  365;  Stu-         *  Stuart  v.  Bigler,  supra, 
art  ».  Bigler.  98  Pa.  St.  80;   Gilpin 
t>.  Howell,  5  Ib.  41. 


136  NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER  XI. 

THE  ENFORCEMENT  OF  COLLATERAL  SECURITIES. 

§104.    The  pledgee's  action  on  principal  note  while  holding   collateral 
securities. 

105.  The  pledgee's  action  on  the  principal  note  supported. 

106.  Production    of   collateral   securities    upon   action  on  the   princi- 

pal note. 

107.  And  the  principal  note  upon  suit  on  collateral  paper. 

108.  Collateral  paper  unaffected  by  merger  of  note  into  judgment. 

109.  Action  upon  antecedent  debt  not  affected  by  receiving  collateral  secu- 

rities, without  more. 

110.  Nor,  if  transferred  as  collateral  security  for  simple  contract  debts. 

111.  Election  of  pledgee  as  to  enforcement  of  collateral  securities. 

112.  Liabilities  of  parties  to  negotiable  collaterals,  when  unaffected. 

113.  Concurrent  remedies  upon  the  principal    note  and  collateral  se- 

curities. 

114.  The  care  in  collection  of  collaterals  required  of  the  pledgee. — His 

responsibility  for  loss. 

115.  The  pledgee,  when  not  liable  for  mere  delay  in  collection  of  col- 

lateral securities. 

116.  The  pledgee,  when  not  liable  for  negligence  of  agent. 

§  104.    THE  PLEDGEE'S  ACTION  ON  PRINCIPAL  NOTE, 

WHILE    HOLDING    COLLATERAL  SECURITIES. — The   negotia- 

tiable  promissory  note  or  bill  of  exchange  executed  and 
delivered  by  the  pledgor,  upon  securing  an  advance,  as  his 
own  personal  obligation  in  respect  thereto,  is  the  principal 
evidence  of  the  indebtedness  as  compared  with  the  collateral 
notes  indorsed  to  the  pledgee  to  secure  its  payment.  The 
promise  of  the  maker  to  pay  a  certain  sum  at  a  certain  time 
to  a  certain  person  therein  named,  or  order,  is  not  affected 
by  the  deposit  of  promissory  notes  of  third  parties  as  col- 
lateral security,  and  the  pledgee  is  entitled  to  proceed  by 
action  upon  default  in  payment  of  the  principal  note,  at 


THE   ENFORCEMENT  THEREOF,  137 

maturity,  to  enforce  the  personal  liability  of  the  pledger 
irrespective  of  the  fact  that  he  holds  the  notes  of  other 
persons  as  collateral  security.  The  pledger  is  entitled  to  a 
return  of  such  collateral  paper  only  upon  the  condition  of 
first  repaying  the  moneys  advanced,  or  making  a  due 
tender  thereof  to  the  pledgee.1  The  only  condition  prece- 
dent to  the  right  of  action  of  the  pledgee  against  the  pled- 
ger upon  his  personal  obligation,  is  the  failure  of  the  latter 
to  pay  his  note  at  maturity.  Upon  such  default,  the  right  of 
action  immediately  accrues.* 

§  105.  THE  PLEDGEE'S  ACTION  ON  THE  PRINCIPAL 
NOTE  SUPPORTED. — The  obligation  of  the  pledger  upon  his 
personal  note,  when  sued  thereon  by  the  pledgee,  is  not 
discharged  or  affected  by  the  fact  that  the  pledgee  has 
failed  to  collect  when  due,  the  note  of  a  third  person  held 
as  collateral  security,  and  still  retains  possession  thereof, 
where  there  was  no  gross  neglect  or  bud  faith  on  the  part 
of  the  pledgee  in  relation  thereto.  The  pledgee  is  entitled 
to  recover  the  whole  face  of  the  principal  note.3  Nor  where, 
having  sold  the  negotiable  collateral  notes  deposited,  the 
pledgee  himself  became  the  purchaser,  and  the  relation  of 

1  Sonoma  Valley  Bank  v.  Hill,  59  son,  35  N.  J.  Eq.  160;  Bank  v. 
Cal.  107;  Robinson  v.  Hurley,  11  "Woodruff,  34  Vt.  89.  Where  an  in- 
Iowa,  410;  Rich  v.  Boyce,  39  Md.  solvent  corporation  had  pledged  to 
314;  American  Nat.  Bank  v.  Harri-  a  bank  bills  and  notes  to  secure  the 
son  Wire  Co.,  11  Mo.  App.  446;  payment  of  indebtedness,  part  of 
Winthrop  Savings  Bank  v.  Jackson,  the  collateral  security  being  still 
67  Me.  570 ;  Royal  Bank  v.  Railroad  held  by  the  pledgee,  an  action  by  it, 
Co.,  100  Mass.  444;  Beckwith  v.  Sib-  under  §322  of  Civ.  Code  of  Cal., 
ley,  11  Pick.  482;  Townsend  v.  against  a  stockholder  in  such  cor- 
Newell,  14  Ib.  332  ;  Whitwell  v.  poration  to  recover  his  ratable  pro- 
Brigham,  19  Ib.  117;  Hale  v.  Rider,  portion  of  the  indebtedness,  was 
5  Cush.  231 ,  Taylor  «.  Cheever,  6  supported,  the  liability  of  the  stock- 
Gray.  148;  Butterworth  v.  Kennedy,  holder  making  him  a  principal  debt- 
5  Bosw.  143;  Langdon  «.  Buel,  9  or.  Sonoma  Valley  Bank  v.  Hill, 
Wend  80,  83;  Case  v.  Boughton,  11  supra. 

Ib.  106;  Elder  v.  Rouse,  15  Ib.  218;  *  Taylor  v.  Cheever,  6  Gray,  146. 

Munger  v  Albany  City  Bank,  85  N.  *  Marschuetz  ».  Wiight,  50  Wis. 

Y.  580;  Farmers'  Ins.  Co.  v.  Wilkin-  175. 


1&8 


NEGOTIABLE  COLLATERAL  SECURITIES. 


the  pledge  continuing,  an  action  is  brought  upon  the  prin- 
cipal note.  The  pledger  is  not  entitled  to  set  off  the  full 
value  of  the  securities  at  the  time  of  the  void  sale  as  against 
his  liability  upon  the  note.1  The  pledgee  may  attach  the 
property  of  the  pledgor  to  respond  to  the  execution  in  his 
action  upon  the  principal  demand.*  A  debtor  procured  a 
note  of  a  third  person,  and  pledged  it  as  collateral  security 
for  his  own  note,  the  pledgee  having  indorsed  the  same, 
obtaining  discount  of  the  collateral  note.  At  maturity,  the 
note  was  dishonored,  and  the  pledgee  was  obliged  to  take 
it  up.  Other  notes  were  then  substituted,  one  being  paid, 
the  second  protested.  The  pledgee  then  sued  upon  the 
principal  note.  He  was  allowed  to  enforce  the  note  with- 
out surrendering  the  unpaid  collateral  note  until  he  had, 
been  paid  his  debt.8  The  loss  of  the  collateral  security  by 
theft,  without  negligence,  before  the  matr.rity  of  the  prin- 
cipal note,  is  no  defense  as  against  an  action  on  the  note, 
the  duty  of  the  pledgee  relative  to  the  safe-keeping  of  such 
collateral  security,  an  United  States  government  bond,  be- 
ing an  independent  promise,  and  not  a  condition  of  the 
promise  in  the  principal  note.4 

§  106.  PRODUCTION  OP  COLLATERAL  SECURITIES  UPON 
ACTION  ON  THE  PRINCIPAL  NOTE. — The  pledgee  of  nego- 
tiable collateral  paper,  although  entitled,  upon  default,  to 
enforce  pa3rment  of  the  principal  obligation,  and  to  retain 
such  collateral  securities  until  payment,  should  be  ready,  in 
such  action,  in  order  to  entitle  himself  to  judgment,  to  pro- 
duce the  negotiable  collateral  securities,  or  account  satis- 
factorily for  their  non-production,  as  they  may  have  passed 
before  maturity  into  the  hands  of  bcna  fide  holders  for  value, 
without  notice,8  being  the  rule  enforced  in  actions  upon 

1  Killian  «.  Hoffman,  6  Bradw.  4  Winthrop  Savings  Bank  ».  Jack- 

200.  son,  67  Me.  570. 

»  Whitwell  v.  Brigham,  19  Pick.  •  Stuart  v.  Bigler,  98  Pa.  St.  80; 

117.  Spalding  v.  Bank,  9  Ib.  28;  Lucas 

»  Hunter  t.  Moul,  98  Pa.  St.  13.  «.  Harris,  20  111.  167;  Carr  ».  Field- 


THE  ENFORCEMENT  THEREOF.  139 

negotiable  instruments.1  Nor  is  it  a  good  reason  for  the  non- 
production  of  such  negotiable  collateral  securities,  that  they 
have,  since  the  time  of  pledge,  become  valueless,  as  non 
constat,  they  may  have  been  negotiated  by  the  pledgee  while 
they  were  stiil  of  value.8  Upon  the  non-production  of  nego- 
tiable collateral  securities,  and  failure  to  account  therefor, 
the  pledgee  is  charged  with  the  face  value  of  the  same,  as 
they  may  have  passed  before  maturity  to  an  innocent  in- 
dorsee, without  notice  of  antecedent  equities,  the  pledgee 
having  the  full  title  to  them.8  Upon  proof  that  the  maker 
of  a  negotiable  promissory  note  indorsed  as  collateral  secur- 
ity, was  solvent  for  some  time  after  its  maturity,  the  pledgee, 
seeking  to  enforce  the  principal  note,  and  failing  to  produce 
the  negotiable  collateral  note,  was  charged  with  the  face 
value  thereof,  as  a  payment  upon  such  principal  obligation.4 
If  such  negotiable  collateral  securities  are  placed  in  the 
hands  of  a  third  party  selected  by  the  pledgor,  and  are  not 
under  the  control  of  the  lender,  no  defense  against  an  action 
upon  the  principal  indebtedness  arises  from  the  loss  of  them.5 
An  objection  founded  upon  the  non-production  of  negotia- 
ble collateral  securities  upon  which  judgment  had  been 
entered,  comes  too  late  when  raised  for  the  first  time  in  an 
appellate  court.* 

§  107.  AND  OF  THE  PRINCIPAL  NOTE  UPON  SUIT  ON 
COLLATERAL  PAPER. — The  same  rule  as  to  production  of 
securities  when  seeking  judgment,  is  applied  where  suit  is 

en,  18  Ib.  77,  81;  Ocean  Nat.   Bank  and  «.  Robinson,  7  B.  &  C.  90;  Crow 

v.  Faut,  50  N.  Y.  474.     See  Matte-  «.  Clay,  9  Ex.  604;  Anderson  v.  Heath, 

son  v.  Matteson,   55  Wis.  452.     A  4  M.  &  S.  308. 

creditor,  who  holds  a  bill  of    ex-  *  Stuart  v.  Bigler,  98  Pa.  St.  80. 

change  as  collateral  security,  can  not  *  Spalding  v.  Bank,  9  Pa.  St.  28; 

prove  his  debt  in  the  English  bank-  Lucas  ».  Harris,  20  111.  167 ;  Carr  v, 

ruptcy  courts  without  producing  the  Fielden,  18  Ib.  77,  81. 

bill.     Ex  parte  Jacobs,  8  R.  17  Eq.  4  Commercial    Bank  v.  Martin,  1 

575;  ex  parte  Ash  worth,  18  Ib.  705.  La.  Ann.  844;   Goodall  v.  Richard- 

1  Smith  v  Rockwell,  2  Hill,  482  ;  son,  14  N.  H.  567. 

Bateman  v.  Poole,    15  Wend.  637;  •  Bank  v.  Peabody,  20  Pa.  St.  454. 

Rowley  v.  Ball,  3  Cow.  303;   Haus-  •  Compton  v.  Blair,  46  Mich.  1. 


140  NEGOTIABLE   COLLATERAL  SECURITIES. 

brought  upon  the  collateral  paper.  In  such  cases  the  pro- 
duction of  the  negotiable  evidences  of  principal  indebted- 
ness is  necessary  where  a  bond  and  mortgage  were  given  as 
collateral  security  for  the  payment  of  a  negotiable  promis- 
sory note,  upon  a  suit  to  foreclose  the  mortgage  the  produc- 
tion and  cancellation  of  the  note  was  required  before  judg- 
ment was  entered.  No  one  would  be  entitled  to  enforce  its 
collection  after  judgment,  unless  it  had  passed  before  matur- 
ity into  the  hands  of  a  bona  fide  person  advancing  value 
thereon,  without  notice  of  equities.  The  non-production  of 
negotiable  evidences  of  debt,  when  seeking  to  foreclose 
security  given  for  their  payment,  is  prima  facie  evidence  of 
their  satisfaction.1  Where  such  negotiable  evidences  of  debt 
have  been  merged  into  a  judgment,  the  note  need  not  be 
produced  upon  subsequent  proceedings  upon  the  securities 
given  to  secure  their  payment.  The  judgment  rendered 
upon  the  note  is  then  the  evidence  of  the  debt.*  Where 
judgment  has  been  entered  upon  the  principal  debt,  the  col- 
lateral securities  of  a  third  person  pledged  for  the  payment 
are  not  merged  in  such  judgment,  and  the  pledgee  is  entitled 
to  sue  the  pledger  upon  his  indorsement  of  such  collateral 
notes,  notwithstanding  the  judgment  upon  the  principal 
debt.1 

§108.  COLLATERAL  PAPER  UNAFFECTED  BY  MERGER 
OF  NOTE  INTO  JUDGMENT. — No  change  is  created  in  the 
relations  of  parties  to  a  contract  of  pledge  by  a  judgment 
having  been  entered  upon  the  principal  note.  The  pledgee 
is  entitled  to  retain  and  collect  all  collateral  securities  until 
such  judgment  is  fully  paid.4  A  distinction  is  drawn  be- 


'Matteson  v.   Matteson,  55  Wig.  U.  8.206;  Wyman  v.  Cochranc,  35 

452;  Bergen  t>.  Urbahn,  83  N.  Y.  49;  111.  154. 

Jackson  v.   Willard,   4  Johns.  43;  •  Stcele  ®.  Lord,  80  Hun.  27:  Bank 

Langdon  v.  Buel,  9  Wend.  80;  Lucas  of  Chenango  v.  Hyde,  4  Cow.  509. 

t>.  Harris,  20  111.  167.  4  Smith  v.  Strout,  63  Me.  205 ;  Com- 

*  Conn.  Mo.  Ins.  Co.  v.  Jones,  8  stock  t>.  Smith,  23  Ib.  202;  Chapman 

Fed.  Rep.  303;  Ober  v.  Gallagher,  93  c.  Lee,  64  Ala.  483 ;    Whitwell  tx 


THE   ENFORCEMENT  THEREOF.  141 

tween  payment  of  the  debt  by  the  pledger  and  a  rendition 
of  judgment  upon  the  debt  as  to  his  rights  to  a  return  of 
collateral  securities.  Obtaining  judgment  is  only  one  step 
to  obtaining  satisfaction.  Demand  made  in  an  action  upon 
a  note  for  the  surrender  of  the  collateral  securities  as  a  con-* 
dition  precedent  to  judgment,  was  refused.1  Nor  where  the 
pledgee  has  proved  for  the  whole  amount  of  his  debt  in 
insolvency  proceedings  against  the  pledger.*'  Nor  will  a 
judgment  on  a  note  held  as  collateral  merge  or  extinguish 
the  principal  debt.* 

§  109.    ACTION  UPON  ANTECEDENT  DEBT  NOT  AFFECTED 

BY    RECEIVING    COLLATERAL    SECURITY. — No    presumption 

arises  from  the  acceptance  of  negotiable  promissory  notes  of 
the  debtor  or  of  a  third  person  for  a  pre-existing  debt,  that 
the  same  are  received  in  payment;  nor  does  such  acceptance, 
in  the  absence  of  agreement,  express  or  implied,  suspend 
or  impair  the  rights  of  the  creditor  to  enforce  the  principal 
indebtedness.4  The  taking  of  other  securities  of  equal  or 
inferior  degree  does  not,  in  such  cases,  ipse  facto,  discharge 

Brigham,  19  Pick.  117;  Beckwith  «.  34  Vt.  89.  If  the  antecedent  debt 

Sibley,  11  Ib.  483;  Fisher  v.  Fisher,  has  passed  into  judgment,  and  the 

98  3Iass.  803 ;  Sonoma  Valley  Bank  note  given  is  dishonored,  the  judg- 

v.  Hill,  59  Cal.  107;  Buncombes. N.  ment  may  be  enforced  either  at  law 

Y.  etc.  R.  R.  84  N.  Y.  193,  201 ;  s.  c.  or  in  equity.  Morris  v.  Harveys,  75 

88  N.  Y.  1 ;  Butler  v.  Miller,  1  Ib.  Va.  726.  Suit  can  not  be  maintained 

496,  500;  Waldron  v.  Zacharie,  54  in  Vermont  on  the  original  indebted- 

Tex.  503.  ness  where  the  promissory  note  of 

1  Hale  v.  Rider,  5  Cush.  231.  the  debtor,  or  of  a  third  person,  tas 

s  In  re  Litchneld  Bank,  28  Conn.  been  given  in  payment,  whether  the 

575.  new  note  be  paid  or  not.  Hutching  v. 

3  Hawks  v.  Hinchcliffe,  17  Barb.  Olcutt  4  Vt.  549;  Torrey  v.  Baxter, 

492.  13  Ib.  452 ;  Farr  v.  Stevens,  26 1  b.  299; 

«Tobey  v.  Barber,  5  Johns.  68;  Collamer  v.  Langdon,  29  Ib.  32; 

Jaffray  v.  Cornish,  10  N.  H.  505;  Wait  «.  Brewster,  31  Ib.  516.  In 

Peter  v.  Beverley,  10  Pet.  532;  Darst  Kentucky  the  receipt  of  such  paper 

v.  Bates,  95  111.  512;  Wilhelm  v.  in  discharge  of  an  antecedent  debt 

Schmidt,  84  111.  183,  188 ;  Mclntyre  suspends  the  right  of  action  on  the 

t.  Kennedy,  29  Pa.  St.  448;  Farmers'  original  debt.  Alexander  v.  Bank,  2 

Ins.  Co.  ®.  Wilkinson,  35  N.  J.  Eq.  Met.  534;  Greenwell  v.  Hayden,  78 

160;  Bank  of  Rutland  v.  Woodruff,  Ky.  332. 


142  NEGOTIABLE  COLLATERAL  SECURITIES. 

a  lien  attaching  by  reason  of  an  original  security,  unless  an 
agreement  of  the  parties  that  such  should  be  its  effect  be 
shown.1  Such  agreement  may  be  established  either  by 
proof  of  an  express  contract,  or  by  proof  of  circumstances 
which  justifies  its  implication.*  If  negotiable  paper  be  in- 
dorsed as  collateral  security  for  an  antecedent  debt,  and  is 
dishonored  while  in  the  hands  of  the  pledgee,  the  right  of 
the  latter  to  recover  upon  the  original  debt  is  not  affected.8 
And  an  action  upon  the  original  debt  is  maintainable,  where 
such  negotiable  collateral  notes,  having  been  discounted 
by  the  pledgee  at  a  bank  with  the  help  of  his  own  credit, 
are  dishonored.4 

In  New  York  the  decisions  are  that  the  acceptance  by  a 
creditor  of  a  new  promise  payable  at  a  future  day,  from  his 
debtor  in  payment  of  an  antecedent  indebtedness,  is  no  de- 
fense to  a  suit  upon  the  original  cause  of  action,  even  if 
there  be  an  express  agreement  between  the  parties  that  the 
new  security  shall  be  a  satisfaction  of  the  old.  The  reason 
for  refusing  to  give  validity  to  the  new  promise  of  the  debt- 
or is  that  it  lacks  the  essential  requisite  of  a  valuable  con- 
sideration.5 The  rule,  however,  is  qualified,  so  as  not  to  be 

1  Schank  t>.  Arrowsmith,  9  N. J.  Eq.  •  Waydall  «.  Luer,    5    Hill,   448 

323;  Freeholders  v.  Thomas,  20  Ib.  (Judge  Cowen).    The  case  was  after- 

41;  Hutchinson  ».  Swartsweller,  32  wards  reversed   (3  Denio,  410)  but 

Ib.  205;  "Wildrick  0.  Swain,  34  Ib.  on  the  point  in  question  the  authori- 

167;  Lord  «.  Bigelow,  124  Mass.  185;  ty  of  Judge  Cowen's  opinion  was  not 

Whitwell  n.  Brigham,  19  Pick.  117;  shaken.     The  rule  was  followed  in 

Comstock  0.  Smith.    23    Me.    202;  Cole  v.  Sackett,  1  Hill,  516;  Hill  0. 

Drake  0.  Mitchell,  3  East.  251 ;  Bel-  Beebe,  13  N.  Y.  556;  Rice  v.  Dewey, 

shaw0.  Bush,  11  C.  B.  191;  Peacock  64  Barb.   455.     Contra:    Meyers  v. 

v.  Purcell,  14  C.  B.  N.  8.  728;  Nat.  Welles,  5  Hill,  463,  and  in  Feldman 

Sav.  Bank  0.  Tranah,  L.  R.  2  C.  P.  0.  Beier,  78  N.  Y.  293,  the  court,  al- 

556;  Cohen  0.  Hole,  L.  R.  3  Q.  B.  D.  though  citing  the  above  cases,  say: 

871.  "It  may  be  assumed  that,  as  there  was 

*  Wildrick     v.     Swain,      supra;  no  express  agreement  that  the  note 
Farmers'  Ins.  Co.  v.  Wilkinson,  35  should  be  received  in  full  satisfac- 
N.  J.  Eq.  169.  tion  and  discharge  of  the  past  due 

•  Hunter  v.  Moul.  98  Pa.  St.  18.          interest,   the  creditor  was  not  pre- 
4  Alcock  D.  Hopkins.  6  Cush.  484;      eluded  from  collecting  the  same." 

Small  0.  Franklin  Co.,  99  Mass.  277.      Merely  taking  the  note  of  a  debtor 


THE  ENFORCEMENT  THEREOF.  143 

applied  in  cases  where  a  negotiable  note  of  a  third  person, 
indorsed  by  the  debtor,  or  a  third  person  has  become  surety 
upon  a  new  note,  there  being  no  agreement  to  take  either 
the  note  or  the  additional  liability  of  the  surety,  as  collateral 
security  for  the  original  antecedent  debt.1  Where  a  cred- 
itor of  a  partnership,  after  the  dissolution  thereof,  and  know- 
ing that  one  of  the  co-partners  had  agreed  to  assume  and 
pay  the  debts  of  the  firm,  received  the  negotiable  note  of 
such  partner  in  payment,  and  extended  the  time  of  payment, 
the  other  partners  were  discharged.* 

§  110.   NOR,  IF  TRANSFERRED  AS  COLLATERAL  FOR 

SIMPLE  CONTRACT  DEBTS. — In  Massachusetts,  where  nego- 
tiable promissory  notes  of  a  third  party  are  received,  upon 
an  agreement  by  the  creditor  to  release  a  pre-existing  simple 
contract  debt  upon  payment  of  such  collateral  notes  at 
maturity,  the  notes  not  being  paid,  the  creditor  is  restored 
to  his  remedy  upon  the  original  debt.8  If  such  collateral 
notes  are  discounted  by  the  indorsee  at  a  bank,  with  the 
help  of  his  own  credit,  and  are  not  paid,  the  original  cause 
of  action  is  revived.4  Such  collateral  notes  may  be  returned 
at  maturity,  upon  their  dishonor.5  Suit  may  be  brought 
upon  such  original  simple  contract  debt,  without  returning 
the  collateral  notes,  after  failure  to  collect  the  same.4  The 
same  rule  is  in  force  in  England,  in  cases  where  a  negotiable 
instrument  is  given  and  accepted  on  account  of  a  simple 
contract  debt.  The  holder,  upon  its  non-payment,  may  sue 

in  payment  and  giving  a  receipt  in         *  Arnold  «.  Camp,  12  Johns  409; 

full,  does  not  of  itself  establish  an  Millerd  ®.  Thorn,   56    N.  Y.   402 ; 

agreement  to  take  the  note  absolutely  Waydall  v.  Duer,  supra. 

in    payment,  and  is  not  an  extin-          '  Lord  v.  Bigelow,  124  Mass.  185; 

guishment  of  the  original  debt.  Put-  Dows  v   Ssvett,  134  Mass.  140;  The 

nam  v.  Lewis,  8  Johns.  389;  Buswell  Kimball,  3  Wall.  45. 

».  Pioneer,  37  N.  Y.  312;    Muldon  v.         *  Alcock  v.  Hopkins,  6  Gush.  484. 

Whitlock,  1  Cow.  290;  Feldman  v.          5  Small  v.  Franklin  Mining  Co.,  99 

Beier,  supra.  Mass.  277. 

1  Waydall  v.  Duer,  Colec.  Sackett,         •  Comstock  v.  Smith.  23  Me.  SOS; 

and  Rice  v.  Dewey,  supra.  Whitwell  v.  Brigham,  19  Pick.  117. 


1-14  NEGOTIABLE  COLLATERAL  SECURITIES. 

upon  the  original  debt,1  if  he  has  taken  the  proper  steps  to 
charge  the  parties  to  the  negotiable  collateral  security.8 

§  111.  ELECTION  OP  PLEDGEE  AS  TO  ENFORCEMENT 
OF  COLLATERAL  SECURITIES. — The  pledgee,  holding  several 
securities  in  pledge  upon  the  same  debt,  is  entitled 
to  elect  upon  which  he  will  proceed,  subject  to  equitable 
considerations  as  to  the  rights  of  third  persons  of  whose 
claims  he  has  notice.  Unless  restricted  by  agreement,  the 
pledgee  may  proceed  upon  default  upon  all  of  the  collateral 
securities  held  by  him,  or  upon  one  or  more  of  them,  in 
order  to  obtain  satisfaction  of  the  principal  indebtedness. 
The  pledgee  holds  all  surplus  avails  of  such  collateral 
securities,  after  payment  of  his  debt,  for  the  benefit  ot  the 
pledger,  or  of  third  persons  equitably  entitled  thereto.8 
The  pledgee  is  required  in  such  election  to  act  in  good  faith. 
Should  he  resort  specially  to  one  collateral  security  held  by 
him,  equal  in  value  to  the  amount  of  the  principal  debt, 
and  by  his  fraudulent  and  wrongful  sale  thereof,  realize 
much  less  than  the  value  of  such  security,  leaving  a  por- 
tion of  the  principal  debt  unpaid,  and  is  proceeding  to  sell 
the  remaining  collateral  notes,  such  sale  is  unauthorized, 
and  the  pledgee  liable  to  account  for  the  full  value  of  the 
collateral  securities.4 


1  Drake  t>.  Mitchell,   3  East.  251 ;  to  any  or  all  to  compel  satisfaction 

National  Sav.  Bank  v.  Tranah,L.  R.  of  the  debt.     Andrews  v.  Section, 

2  C.  P.  556;  Cohen  «.  Hole,  L.  R.  3  2  Bid.  629:   Chapman  «.  Clough,  6 

Q.  B.  D.  371.  Vt.  123;  Third  Nat.  Bank  v.  Harri- 

•Belshaw  v.  Bush,  11  C.  B.  191;  son.  10  Fed.  Rep.  243,   253;  Ayres 

Peacock  v.   Pursell,  14  C.  B.  N.  S.  v.  Watson,  57  Pa.  St.  123;    Union 

728;  Valpy  v.  Oakley,  16  Q.  B.  949;  Bank  v.  Laird,  2  Wheat.  390;   Ober 

Miles  v.  Gorton,  2  Cr.  &  M.  512.  v.  Gallagher,  93  U.  S.  199.     Ex  parte 

'  Buchanan  v.  International  Bank,  Mure,  2  Cox,  63;  Darlow  ».  Cooper, 

78111.  500.     "The  law  does  not  re-  34  Beav.  281;  Kellock's  case,  L.  R. 

quire  a  party  to  rely  upon  one  kind  3  Ch.  776. 

of  security;  a  claim  may  be  secured         4  Mowry  v.  First  Nat.  Bank,  54 

in  as  many  different  modes  as  the  Wis.  38. 
parties  may  desire."    He  may  resort 


THE  ENFORCEMENT  THEREOF.  145 

§  112.  LIABILITIES  OF  PARTIES  TO  NEGOTIABLE  COL- 
LATERAL NOTES  WHEN  UNAFFECTED. — The  liabilities  of 
parties  to  negotiable  instruments  held  by  the  pledger,  and 
indorsed  by  him  to  the  pledgee  as  collateral  security  to  se- 
cure the  payment  of  a  principal  and  independent  debt,  are 
fixed  by  the  order  in  which  their  names  appear  upon  the 
paper;  and  the  pledgee  thereof,  holding  by  indorsement,  so 
as  to  be  a  party  thereto,  for  an  advance,  in  good  faith,  with- 
out notice,  of  equities,  is  a  holder  for  value,  in  the  usual 
course  of  business,  and  entitled,  upon  default  and  notice,  to 
sue  the  parties  thereon.  Nor  is  it  material  to  the  parties, 
bound  upon  such  collateral  note,  that  the  pledgee  may  hold 
other  collateral  securities  to  secure  the  same  debt,  as  their 
obligation  to  pay  is  an  independent  contract  complete  in 
itself.  Where  such  negotiable  collateral  securities,  executed 
by  different  makers,  were  indorsed  as  security  for  a  princi- 
pal note,  although  the  pledgee,  a  bank,  had  a  sufficiently 
large  deposit  to  satisfy  the  principal  note,  and  the  renewals 
thereof,  and  the  personal  liability  of  the  pledgor  upon  his 
own  note,  and  a  power  of  sale  of  the  collaterals  under  the 
contract  of  pledge,  yet  its  failure  to  resort  to  either  was  no 
defense  to  the  liability  of  the  parties  bound  upon  the  nego- 
tiable collateral  securities  in  an  action  thereon  by  the 
pledgee. '  Where  a  negotiable  promissory  note  of  a  third 
party,  properly  indorsed,  is  received  before  maturity  from 
the  payee  and  indorser  as  "collateral  security  for  a  valuable 
consideration,  without  notice,  in  good  faith,  the  pledgee  may 
recover  thereon  against  the  maker,  although  the  latter  has 
paid  the  note  to  the  pledgor  and  payee,  subsequently  to  and 
without  notice  of  the  indorsement. 2  The  like  rule  is  en- 


1  Third  Nat.  Bank  v.  Harrison,  10  428;  Steere  V.  Benson,  2  Bradw. 

Fed.  Rep.  243.  560;  Dix  v.  Tully,  14  La.  Ann.  460. 

2City  Bank  v.  Taylor,  60  la.  66  The  maker  of  negotiable  paper  is  not 

(15  C.  L.  N.  131) ;  Fennell  v.  McGow-  discharged  if  before  its  maturity, 

an,  58  Miss.  261 ;  Vallette  v.  Mason,  and  after  its  transfer,  even  as  collat- 

1  Smith  (Ind.)  89;  Williams  v.  Smith,  eral  security,  he  makes  payment  to 

2  Hill,  301 ;  Mayo  v.  Moore,  28  111.  any   other   than   the   real   holder. 

10 


146  NEGOTIABLE   COLLATERAL  SECURITIES. 

forced  in  cases  where  the  maker,  being  chargeable  with  no- 
tice of  the  indorsement  of  his  note  as  collateral  security,  pays 
the  same  to  the  payee  and  pledger.1  Such  payment  ma}'  be 
made  by  the  consent  of  or  authority  of  the  pledgee,  or 
may  be  subsequently  ratified  by  him.*  Where  the  pledgee 
of  negotiable  collateral  notes  is  not  liable  for  any  surplus 
arising  from  the  collection  of  them  to  the  pledgor  or  third 
parties,  the  enforcement  of  such  collateral  securities  against 
the  parties  thereto  is  restricted  to  the  amount  of  the 
advances  made.1 

§  113.  CONCURRENT  REMEDIES  UPON  THE  PRINCIPAL 
NOTE  AND  COLLATERAL  SECURITIES. — The  pledgee  holding 
negotiable  collateral  securities  for  the  payment  of  the 
pledgee's  principal  obligation,  is  entitled  to  proceed  with 
the  enforcement  of  both  the  principal  and  collateral  securi- 
ties, at  the  same  time,  and  to  judgment  and  execution, 
although  entitled  to  but  one  satisfaction.4  A  suit  upon  the 
principal  indebtedness  may  be  commenced,  although  a  suit 
is  in  progress  upon  the  negotiable  promissory  note  of  a  third 
party  received  as  collateral  security,  and  the  pledgee  has  at- 
tached property  of  persons  liable  thereon  to  answer  the 
judgment.8  The  entry  of  a  judgment  upon  the  principal 
indebtedness  is  not  a  bar  to  proceedings  against  the  pledgor 
and  other  persons,  makers  and  indorsers  of  collateral 
notes.'  Negotiable  bonds  of  a  corporation  having  been  sold 
to  a  bona  fide  purchaser  for  value,  and  other  bonds  pledged 
as  collateral  securities  for  those  sold,  the  pledgee,  in  an  ac- 

Richardson  v.    Rice,   9  Tenn.  290,  23  Hun,  559;  Royal  Bank  T.  Grand 

citing    Gosling   «.  Griffin    to  same  Junction  Ry.  Co.,  100  Mass.  444; 

point,  in  note.  Chapman  v.  Lee.  64  Ala.  483.    He 

1  Fennell  c.  McGowan,  supra.  may  recover  the  costs  paid  by  him 

*  City  Bank  v.  Taylor,  supra.  in  each  suit.      Plants'  etc.   Co.  v. 

*  Vallette  v.  Mason,  and  Williams  Fahey,  20  Wis.  200;  Hilton  v.  War- 
«.  Smith,  supra.  ing,  7  Ib.  492. 

4  Com.  Exch.  Ins.  Assn.  v.  Bab-         •  Chapman  v.  Clough,  6  Vt.  123. 
cock,  57  Barb.  233;  Butler  «.  Miller,         •  Stecle  v.  Lord,  30  Hun,  27. 
1  N.  Y,  496  ;  Sickles  v.  Richardson, 


THE  ENFORCEMENT  THEREOF.  147 

tion  upon  both  classes  of  bonds,  was  given  a  judgment  for 
the  face  value  of  all  he  held,  whether  as  vendee  or  pledgee. 
TTntil  payment  of  the  actual  indebtedness  to  the  pledgee, 
the  pledgors  had  no  equity  to  set  up  that  some  of  the  bonds 
were  held  as  collateral  security.1 

§   114.      THE    CARE    IN    COLLECTION     OF    COLLATERALS 
REQUIRED     OF    THE      PLEDGEE — HlS    RESPONSIBILITY     FOR 

LOSS. — Where  negotiable  instruments  made  by  a  third 
party  are  used  as  collateral  security  for  the  promissory  note 
or  bill  of  exchange  of  the  pledgor,  so  that  the  pledgee 
of  them  becomes  a  party  thereto,  and  such  collateral  paper 
matures  before  the  principal  debt,  the  duty  and  obligation 
of  the  pledgee  in  the  collection  thereof,  is  performed  by  the 
exercise  of  reasonable  and  ordinary  care  and  diligence. 
More  than  this  is  not  required  of  the  pledgee.*  Although 
in  such  cases,  where  he  has  become  a  party  to  the  collateral 
security,  it  is  not  enough  for  him  to  keep  the  same  in  safety, 
as  no  one  but  the  pledgee  can  make  demand  of  payment 
and  give  notice  of  dishonor,  or  upon  default,  bring  an  action 
to  enforce  payment  by  legal  process.8  Generally,  the  most 
important  consideration  as  to  the  pledgee's  duty  relative  to 
collateral  securities  is,  that  perfect  good  faith  should  be  ob- 
served by  him  in  his  dealings  therewith.  If  he  acts  in  good 
faith,  the  pledgor  can  not  complain.  Only  in  cases  of 

1  Royal  Bank  v.  Grand  Junction  and  insist  upon  its  payment  before 

Ry.  Co.,  100  Mass.  444.  maturity,  even  if  it  will  be  paid,  and 

'Reeves  v.  Plough,  41  Ind.  204;  the  maker  afterwards  becomes  in- 

Kiser  v.  Ruddick,  8  Blackf.  882;  Me-  solvent.  Such  demand  is  not  with- 

Lenore  v.  Hawkins,  46  Miss.  715;  in  the  rule  of  ordinary  diligence. 

Jones  v.  Hicks,  52  Ib.  682;  Noland  Roberts  v.  Thompson,  14  Ohio  St.  1. 

v.  Clark,  10  B.  Mour.  239;  Childs  v.  *  Roberts  v.  Thompson,  supra. 

Corp,  1  Paine  C.  C.  284;  Lawrence  But  where  the  collateral  is  simply  :i 

v.  McCalmont,  2  How.  426.  A  ne-  receipt  for  a  note  in  which  the 

gotiable  note  of  a  third  party  was  pledgor  had  a  part  interest  only,  the 

pledged  before  due  as  collateral  se-  pledgee  is  not  bound  to  pursue  its 

curity,  the  debtor  waiving  demand  collection,  and  that  if  uncollectible 

and  notice  of  non-payment.  The  the  loss  fell  upon  the  pledger, 

pledgee  is  not  required  to  demand  Smouse  v.  Bail,  1  Grant's  Cas.  397, 


148  NEGOTIABLE  COLLATERAL  SECURITIES. 

fraud  or  gross  negligence  on  the  part  of  the  pledgee  will  he 
be  held  to  stricter  account.1 

If  upon  a  pledge  of  negotiable  collateral  securities,  so  as 
to  convey  the  title  thereto,  the  pledgee,  because  of  his  gross 
negligence,  or  by  his  tortious  transfer  of  them  or  dealings 
therewith,  fails  to  collect  the  same  of  the  parties  bound 
thereon,  when  it  might  have  been  done,  and  the  pledger  is 
injured  and  the  amount  of  the  collateral  paper  lost,  the 
pledgee  is  chargeable  with  the  face  of  such  collateral  securi- 
ties as  in  payment  and  discharge  of  the  principal  debt.* 
Where  the  opportunity  of  collecting  collateral  bills  or 
notes  is  lost  by  the  insolvency  of  the  parties  thereto,  by 
reason  of  the  supine  negligence  of  the  pledgee,  when  with 
ordinary  care  the  same  might  have  been  enforced,  the  latter 
is  liable  to  account  for  the  full  loss  and  darfiage  of  the 
pledger.8  Such  responsibility  of  the  pledgee  is  limited  to 
the  actual  loss.4  The  liability  of  the  pledgor  a3  indorser 
upon  such  negotiable  collateral  notes  of  third  parties  is,  in 
such  cases  of  gross  negligence,  discharged.8 

§  115.  THE  PLEDGEE,  WHEN  NOT  LIABLE  FOR  MERE 
DELAY  IN  COLLECTION  OP  COLLATERAL  SECURITIES. — The 

1  Black  River  Bank  v.  Page,  44  N.  614;  Howard  v.  Gardner,  10  N.  Y. 

Y.  453.  261;  Baker  e.  Briggs,  8  Pick.  129. 

*  Powell  v.  Henry,  27  Ala.  612;  Where  promissory  notes  secured  by 

Cooke  v.  Chancy,  14  Ib.  65;  Wood  mortgage  were  held  as  collateral  se- 

«.  Mathews,  73  Mo.  481;  Lyon  v.  curity  and  an  action  was  brought 

Huntington  Bank,  12  S.  &  R.  69;  for  damages  on  account  of  neglect 

Spalding  t>.Barr,9  Pa.  St.  28;  Wake-  to  foreclose,  the  measure  of  damages 

man  v.  Goudy,  10  Bosw.  208;  Rob-  recovered  was  only  the  actual  loss 

erts  v.  Thompson,  10  Ohio  St.  1;  caused  by  the  pledgee's  neglect, 

Whittaker  «.  Charleston  Gas  Co.,  16  as  the  land  might  still  be  ample  se- 

W.  Va.  717;  Noland  «.  Clark,  10  B.  curity.  Steele  c.  Brown,  75  111. 

Mon.  239;  Westphal  v.  Ludlow,  2  452.  Lamberton  v.  Windom,  12 

McCrary,  505;  Stuart  v.  Bigler,  98  Minn.  232;  Wakeman  v.  Goudy,  10 

Pa.  St.  80.  Bosw.  208;  Slevin  v.  Morrow,  4  Ind. 

•Hannah  v.  Holton,  78  Pa.  St.  425;  Lyon  v.  Huntington  Bank,  12 

834.  8.  &  R.  61. 

4  Grove  v.  Roberts,  6  La.  Ann.  210;  *  Whitten  «.  Wright,  34  Mich.  92. 
Barrow  v.  Rhinelander,  3  Johns.  Ch. 


THE  ENFORCEMENT  THEREOF.  149 

pledgee  of  negotiable  collateral  securities,  however,  is  not 
held  to  strict  responsibility  in  proceeding  at  once,  upon  de- 
fault, in  the  enforcement  thereof.  Mere  delay  in  so  doing 
is  not  sufficient  to  create  any  liability  upon  his  part  to  the 
pledger.1  Where  there  is  no  suspicion  that  the  maker  is 
embarrassed,  and  no  request  on  the  part  of  the  pledger 
that  collection  should  be  promptly  made,  the  pledgee  is  not 
answerable  for  a  subsequent  actual  loss.9  And  where  the 
pledgee  has  information  upon  which  he  is  certain  that  a  suit 
upon  the  collateral  note  would  be  fruitless,  he  is  not  re- 
quired to  sue  the  same.*  The  pledgee  of  negotiable  col- 
lateral paper  in  order  to  be  charged,  upon  failure  to  collect, 
with  the  face  value  thereof,  as  a  payment  pro  tanto  of  the 
principal  debt,  must  have  been  guilty  of  such  bad  faith  or 
gross  negligence  that  it  would  be  unjust  and  inequitable  to 
the  pledgor  were  he  not  so  charged.4  In  case  of  delay  on 
the  part  of  the  pledgee  to  enforce  the  payment  of  collateral 
securities  and  possible  depreciation  in  the  value  of  them, 
after  the  maturity  of  the  principal  note,  the  pledgor,  upon 
the  equitable  condition  of  paying  or  tendering  the  amount 
of  his  debt,  becomes  entitled  to  a  return  of  the  collateral 
paper  while  it  remains  of  value.5  Although  he  will  have 
no  right  to  call  for  a  return  of  such  collateral  securities 
upon  a  payment  or  tender  of  but  an  aliquot  or  other  portion 
of  the  debt ;'  the  pledgee  having  a  right  to  retain  all  the 
collateral  securities  until  actual  satisfaction  of  his  whole  de- 
mand or  tender  of  the  sum  due.7 

§  116.  THE  PLEDGEE,  WHEN  NOT  LIABLE  FOR  NEGLI- 
GENCE OF  AGENT. — The  pledgee  of  negotiable  collateral 
securities  who  has  employed  an  agent  or  attorney  in  con- 

1  Steger  ».  Bush,  S.  &  M.  Ch.  172.  ham,  87  Pa.  St.  394;  In  re  Kettera's 

4  Goodale  ®.  Richardson,  14  N.  H.  Est.  17  Ib.  424. 

567.  •  In  re  Kettera's  Est.  supra. 

3  Smith  v  Felton,  85  Ind.  223.  7  Hunter  v.  Moul,  98  Pa.  St.  13; 

4  Wells  v.  Wells,  53  Vt.  1.  Benoir  v.  Peguin,  40  Vt.  199 ;  Jones 
8  Androscoggin  Bank  v.  Auburn  «.  Merchant's  Bank,  4  Robt.  221 ;  6 

Bank,  48  Me.  335;  O'Neill  v.  Whig-      Ib.  162. 


160  NEGOTIABLE  CO!  >  ATKRAL  SECURITIES. 

nection  with  the  collection  or  realization  thereof,  is  not 
liable,  where  he  has  exercised  reasonable  care  and  judg- 
ment in  his  selection,  by  reason  of  the  misconduct  or  gross 
negligence  of  the  person  or  persons  employed.1  If  a  pled- 
gee of  negotiable  paper  deposits  the  same  in  a  bank  or 
agency,  for  the  purpose  of  having  collections  made,  and 
such  bank  or  agency  fails  or  neglects  to  take  the  proper 
steps  to  charge  the  parties  liable  thereon,  an  action  against 
the  bank  or  agent  may  be  brought  in  favor  of  anyone  bene- 
ficially interested  in  such  collateral  securities.  The  pledgee 
himself  is  entitled  to  an  action,  the  amount  recovered  being 
applied,  at  the  maturity  of  the  principal  note,  as  a  payment 
upon  the  same.  The  pledger,  upon  payment  of  the  debt, 
being  entitled  to  an  immediate  return  of  the  collateral  se- 
curities, a  right  of  action  against  the  bank  or  agency  at 
once  accrues  in  his  favor,  as  the  real  party  in  intercut." 

1  Commercial   Bank  v.  Martin,  1  *  McKinster  r.  Bank  of  Tl  tir-a,  9 

Lou.  Ann.  344;  Exeter  Bank  v.  GOT-  Wend.  46  ;  11  Ib.  473:    W'hitoev  t>. 

don,  8  N.  H.  66;  Goodale  v.  Rich-  M.  U.  Exp.  Co,  104  M*<«,  153. 
ardson,  14  Ib.  567, 


THE  PLEDGEE'S  SALE.  151 


CHAPTER  XII. 

PLEDGEE'S  SALE  OF  COLLATERAL  SECURITIES. 

§117.  The  pledgee  of  bills  and  notes  has  no  right  of  sale. 

118.  The  right  of  sale  under  contract. 

119.  The  pledgee's  relief  in  equity  to  obtain  sale  of  collateral  paper. 

120.  The  pledgee's  right  to  sell  negotiable  bonds,  on  default. 

121.  The  requirements  of  a  valid  sale. 

122.  Notice  of  sale  of  collateral  paper  when  provided  for  by  contract. 

123.  Notice  of  sale  by  pledgee,  when  sufficient. 

124.  Right  of  pledgee  of  negotiable  bonds,   upon   default,  to   enforce 

mortgage  securities. 

125.  The  title  of   bona  fide  purchasers  for  value,  at  sale  of  collateral 

securities. 

126.  The  pledgee  as  purchaser  of  negotiable  collateral  paper. 

§  117.  THE  PLEDGEE  OF  BILLS  AND  NOTES  HAS  NO 
RIGHT  OF  SALE. — The  pledgee  of  negotiable  instruments 
such  as  bills  of  exchange  and  promissory  notes,  so  as  to  be- 
come a  party  thereto,  as  collateral  security  for  the  payment 
of  a  principal  note  or  obligation,  is  not  entitled,  upon  de- 
mand of  payment  and  default  of  the  principal  debt,  and 
notice  to  the  pledgor,  to  offer  such  negotiable  collateral 
securities,  at  either  public  or  private  sale,  in  the  absence 
of  authority  by  special  contract  so  to  do.1  Negotiable  col- 
Fletcher  0.  Dickinson,  7  Allen,  Conn.  275;  Whittaker  "0.  Charleston 
23;  Nelson  v.  Edwards,  40  Barb.  Gas  Co.,  16  W.  Va.  717.  In  Joliet 
279;  Same  v.  Wellington,  5  Bosw.  Iron  Co.  v.  Scioto  etc.  Co.,  82  111. 
178;  Brookman  v.  Metcalf,  5  Ib.  429;  548,  the  Court  (Dickey,  J.)  says: 
Brown  v.  Ward,  3  Duer,  660;  Lam-  "The  pledge  of  commercial  paper 
berton  v.  Windom,  12  Minn.  232;  as  collateral  security  for  the  pay- 
Zimpleman  ».  Veeder,  98  111.  613;  ment  of  a  debt  does  not,  in  the  ab- 
Morris  Canal  Co.  v.  Lewis,  12  N.  J.  sence  of  a  special  power  for  that 
Eq.  321 ;  In  re  Litchfield  Bank,  28  purpose,  authorize  the  party  to 


152  NEGOTIABLE  COLLATERAL   SECURITIES. 

lateral  securities,  such  as  bills  and  notes,  are  held  by  the 
pledgee  under  a  quasi  trust  in  favor  of  the  plndgor,  and  are 
of  such  a  character  that  a  public  or  private  sale  is  generally 
made  at  a  sacrifice.  The  solvency  or  circumstances  of  parties 
to  the  collateral  paper  may  not  be  well  known  and  few  per- 
sons will  purchase,  and  those  for  speculation,  and  at  low 
prices.  The  pledger  is  not  required  to  submit  his  negotiable 
collateral  securities  to  an  ordeal  to  which  commercial  paper 
is  unusually  subjected,  arid  which  must  be  destructive  of  its 
value  except  in  rare  cases.1  The  rule  disapproving  of  sales 
of  negotiable  collateral  securities  either  at  public  or  private 
sale,  without  express  contract  authorizing  such  sale,  applies 
where  such  collateral  bills  or  notes  mature  later  than  the 
original  debt  or  obligation,8  but  does  not  apply  to  long  time 
paper  or  negotiable  bonds.1 

§  118.  THE  BIGHT  OF  SALE  UNDER  CONTRACT. — A 
power  of  sale  of  such  negotiable  instruments  held  as  collat- 
eral security  may  be  given  by  the  contract  of  pledge.  Sucli 
a  power  is  not  against  public  policy,  nor  is  it  open  to  any 
objections  as  to  its  validity.4  Such  a  power  given  by  con- 
tract, however,  so  far  as  it  enables  the  pledgee  to  extin- 

whom  such  paper  is  so  pledged,  to  187.  "It  will  rather  be  presumed 
sell  the  securities  so  pledged  upon  that  it  was  the  intention  of  the  par- 
default  of  payment,  either  at  public  ties  to  the  contract  that  the  creditor 
or  private  sale.  He  is  bound  to  hold  should,  if  he  resorted  to  the  pledge 
and  collect  the  same  as  it  becomes  in  place  of  the  personal  liability  of 
due,  and  apply  the  net  proceeds  to  the  debtor,  accept  the  money  upon 
the  payment  of  the  debt  so  secured,  the  hypothecated  securities  as  it  be- 
From  the  very  nature  of  the  case,  came  due  and  payable,  and  apply  it 
property  can  only  be  applied  as  se-  to  the  satisfaction  of  the  debt." 
curity  through  the  process  of  sale ;  Wheeler  v.  Newbould,  16  N.  Y. 
not  so,  with  bonds,  mortgages,  or  392. 

promissory    notes."     Union    Trust  *  Fraker  ».  Reeve,  36  Wis  85. 

Co.  u.  Rigdon,  93  111.  458;    Zimple-  *  Union  Trust  Co.  v.   Rigdon,  93 

man  v.  Veeder,  98  Ib.  613;    Walker  111.458.    The  power  to  "negotiate" 

c.  Carleton,  97  Ib.  582.  collateral  notes,  upon  default,    in- 

1  Wheeler  v.  Newbould,  5  Duer,  eludes  the  right  of  sale.    Fraker  « 

29;  affirmed  16  N.  Y.  392.  Reeve,  36  Wis.  85. 

*  Nelson  v.  Wellington,  5  Bosw. 


THE  PLEDGEE'S  SALE.  153 

guish  the  right  of  the  pledger  to  redeem,  will  as  other  con- 
tracts affecting  equities  of  redemption,  be  construed  favor- 
ably for  the  interests  of  the  pledger,  so  far  as  is  consistent 
with  the  rights  of  the  pledgee.  The  power  of  sale  must  be 
exercised  with  a  view  to  the  interest  of  the  pledgor  as  well 
as  of  the  pledgee,  and  a  sale  must  not  be  forced  for  barely 
enough  money  to  secure  the  payment  of  the  debt ;  and  de- 
mand of  payment  of  the  debt  should  generally  precede  it.1 
The  terms  of  the  contract  govern  the  rights  of  the  parties 
as  to  the  time,  place,  and  notice  of  sale,  and  must  be  strictly 
pursued.2  Where  these  are  not  prescribed,  the  sale  should 
be  made  openly,  at  a  public  place,  and  after  proper  notice  to 
the  pledger.8  It  is  no  part  of  the  duty  of  a  pledgee  of 
negotiable  securities  having  a  power  of  sale  of  securities  to 
constantly  watch  the  market,  and  take  advantage  of  the 
most  favorable  opportunities  for  selling.4  Such  power  of 
sale,  upon  default  in  payment,  is  not  construed  as  excluding 
the  right  of  the  pledgee  to  sue  upon  such  collateral  notes. 
It  is  rather  an  additional  power  given  him  for  the  realiza- 


1  Sparhawk  v.  Drexel,  42  Bank  R.  day,  is  unreasonable.  Stevens  v. 

450;  Union  Trust  Co.  v.  Rigdon,  su-  Hurl  burl  Bank,  31  Conn.  149.  A 

pra;  Zimpleman  v  Veeder  98  Ib.  *  form  of  notice  for  public  sale:  "Sale 

613;  Wilson  ».  Little,  2  N.  Y.  443.  of  Collateral  Securities. — Notice  is 

3  Union  Trust  Co.  ».  Rigdou,  su-  hereby  given  that  the  undersigned 
pra  The  power  of  sale  in  this  case,  will,  on  the  *  *  day  of  *  *  * 
which  formed  a  pan  of  the  body  of  at  *  *  o'clock,  *  M.,  of  said  day, 
the  principal  note,  was:  "  I  hereby  sell,  at  public  vendue,  to  the  highest 
give  the  said  A,  its  assignor  assigns,  bidder  at  [a  public  place  or  Ex- 
authority  to  sell  the  said  collateral  change],  all  the  following  collateral 
notes,  or  any  part  thereof,  on  the  securities,  to  wit  [describing  the 
maturity  of  this  nole,  or  at  any  time  same].  Terms  of  sale,  cash.  *  * 
thereafter  or  before,  in  the  event  of  *  *"  This  notice  may  be  used  for 
such  securities  depreciating  in  value,  sales  under  contract  (see  §3,  n.  T), 
at  public  or  private  sale,  without  ad-  Special  notice  should  be  given  to 
vertizing  the  same,  or  demanding  the  pledgor,  and  in  case  of  sub- 
payment,  or  giving  notice."  pledge,  both  to  the  original  pledgor 

8  Fraker  v.  Reeve  and  Wheeler  v.  (if  known)  and  to  the  pledgee.  Bur- 

Newbould,  supra.  A  sale,  after  notice  cap  v.  Nat.  Bank,  96  N.  Y.  125,  129. 

to  pay  or  give  security  on  the  same  4  Whitin  ».  Paul,  13  R.  I.  40. 


154  NEGOTIABLE  COLLATERAL   SECURITIES. 

tion  of  his  collateral  securities.1  The  pledge  of  a  note  to 
one  creditor  as  collateral  security  with  a  power  of  sale, 
does  not  affect  the  right  of  other  creditors  to  levy  upon  the 
pledgee's  reversionary  interest  therein,  and  to  sell  the  same, 
subject  to  the  rights  of  the  pledgee.*  It  is  questionable 
whether  a  valid  sale  can  be  made  of  a  collateral  note  to  the 
maker,  at  private  sale,  at  any  rate  for  less  than  its  face 
value.  Such  a  sale,  without  the  consent  of  the  pledger 
previously  obtained,  would  be  "  very  suspicious."8 

§  119.  THE  PLEDGEE'S  RELIEF  IN  EQUITY  TO  OBTAIN 
SALE  OF  COLLATERAL  PAPER.  —  Applications  are  rarely 
made  to  courts  of  equity  for  assistance  in  obtaining  the  real- 
ization by  sale  of  negotiable  collateral  paper,  such  as  bills  of 
exchange  and  promissory  notes.  No  ground  exists,  except 
in  exceptional  cases,  for  the  aid  of  a  court  of  equity,  as  the 
pledgee,  receiving  such  collateral  securities,  indorsed  where 
required  so  as  to  become  a  party  thereto,  and  possessing  the 
full  legal  title,  has  a  complete  remedy  by  an  action  at  law 
against  the  parties  bound  thereon.  Equitable  relief  was 
given  in  a  case,  where  the  maker  of  the  collateral  note 
resided  in  New  York,  the  pledger  and  pledgee  in  San  Fran- 
cisco. The  maker  had  no  property  or  estate  in  California 
subject  to  legal  process,  and  upon  presentment  of  the  note 
to  him  for  payment  at  maturity,  it  was  protested.  Upon  a 
bill  filed  by  the  pledgee,  a  court  of  equity  decreed  that  the 
note  should  be  sold  at  a  judicial  sale,  and  that  in  the  event 
of  any  deficiency  occurring,  a  supplementary  decree  there- 
for should  be  entered  as  against  the  pledgor.4  A  pledgee 

1  Third  Nat.  Bank  t>.  Harrison,  10  *  Donohoe  v.  Gamble.  88  Cal.  354. 

Fed.  Rep.  243;  Nelson  ».  Eaton,  26  The  court  say:  "The  same  reasons 

N.  Y.  410;  Nelson  v.  Wellington,  5  which  would  require  the  pledgee  to 

Bosw.  178;  Nelson  v.  .Edwards,  40  pursue  the  maker  with  leg;il  process 

Barb.  279.  in  the  State  of  New  York  would 

*  Pickens  «.  Webster,  31  La.  Ann.  equally  demand  that  he  should 

879.  follow  him  to  Europe,  South  Amer- 

a  McLenore  v.  Hawkins,  46  Miss,  ica,  or  any  other  foreign  country, 

715.  where  he  might  be  known  to  be 


THE  PLEDGEE'S  SALE.  155 

holding  a  negotiable  bond  issued  by  a  railroad  company  in 
the  United  States,  was  given  an  order  of  sale  by  an  English 
court  of  chancery,  and  allowed  to  purchase  the  same  him- 
self, he  not  conducting  the  sale.1  And  a  bill  in  equity  was 
sustained  for  a  foreclosure  and  sale  of  collateral  securities 
with  a  short  time  for  redemption,  where  the  pledgee  held 
the  full  legal  title  to  the  same.*  But  upon  a  pledge  of  city 
certificates,  indorsed  in  blank  so  as  to  pass  the  title  thereto, 
as  collateral  security  for  the  payment  of  the  pledger's  note, 
and  both  parties  resided  in  the  city  issuing  the  certificate, 
the  pledgee  having  a  complete  remedy  at  law,  the  aid  of 
equity  to  decree  a  judicial  sale  of  the  collateral  security  was 
refused.* 

§  120.  THE  PLEDGEE'S  RIGHT  TO  SELL  NEGOTIABLE 
BONDS,  ON  DEFAULT.  —  The  pledgee  of  long-time  bonds 
issued  by  the  government,  municipal  or  other  corporations, 
payable  to  bearer  or  holder,  and  negotiable  by  delivery, 
holding  the  same  as  collateral  security  for  the  payment  of 
promissory  notes  or  bills  of  exchange,  maturing  at  early 
dates,  has  the  right,  even  in  the  absence  of  contract,  to  sell 
such  collateral  securities  upon  default  in  payment  of  the 
original  debt,  under  proper  conditions  as  to  notice  of  the 
time,  place  and  manner  of  sale.4  The  presumption  is  that 
a  pledgee  is  entitled  to  sell  such  long-time  bonds,  and  coup- 
ons thereto  attached,  as  stocks,  public  securities,  goods,  and 

domiciled.     This  would    impose  a  *  Whitaker  v.  Charleston  Gas  Co., 

hardship  on  the  pledgee  which  evi-  16  W.  Va.  717. 

dently  was  not  within  the  contem-  4  Jerome  v.  McCarter,  94  U.  S.  734 ; 

plation  of  the  parties.     We  think  he  Fletcher  v.  Dickinson,  7  Allen,  23; 

may  go  into  a  court  of  equity  for  a  Wasuburn®.  Pond,  2  Ib.  474;  Han 

foreclosure  and  sale  of  the  note  for  cock  v.  Franklin  Ins.  Co.,  114  Mass, 

whatever  it  will  bring  in  the  market  155;  Brown  «.  Ward,  3  Duer,  660; 

at  a  judicial  sale."                                ,  Morris  Canal  &  B.  Co.  «.  Lewis,  12 

1  Carter  t>.  Wake,  L.  R  4  Ch.  D.  '  N.  J.  Eq.  321 ;  Duffield  v.  Miller,  92 

405.  Pa.  St.  286;  Alexander  R.  R.  Co.  v. 

'France  v.  Clark,  L.  R.  22  Ch.  Burke,    22    Gratt.    254;     Newport 

D.  830;  Smith  v.  Coale,  12  Phila.177.  Bridge  Co.  ».  Douglass,  12  Bush,  673. 


156  NEGOTIABLE   COLLATERAL  SECURITIES. 

chattels  are  sold,  upon  demand  and  default  in  payment  of 
the  principal  debt,  and  after  due  notice  of  sale.  Such  col- 
lateral securities  differ  essentially  from  the  ordinary  nego- 
tiable notes  and  bills  of  exchange,  or  notes  and  bonds, 
secured  by  mortgage.1  The  right  to  sell  such  long-time 
bonds  is  an  incident  of  the  pledge  thereof,  and  part  of  the 
security,  and  passes  with  the  collateral  securities  into  the 
hands  of  any  bona  fide  holder  advancing  money  thereon,  in 
the  due  course  of  business.8  The  rule  is  otherwise  where 
bonds  issued  by  a  railroad  company  are  payable  upon  condi- 
tion, so  that  no  bidder  at  a  public  sale  can,  by  mere  inspec- 
tion of  the  paper,  form  any  just  judgment  as  to  the  value 
thereof.  In  such  a  case,  a  sale  by  the  pledgee  is  not 
approved.8 

If  the  pledgee  of  negotiable  bonds  and  other  secur- 
ities having  upon  default  in  payment  of  the  principal 
debt,  and  upon  due  notice,  a  right  of  sale  of  such  collateral 
securities,  fails  to  exercise  such  right,  but  continues  to 
retain  the  securities  in  his  possession,  his  title  thereto  con- 
tinues to  be  that  of  a  pledgee,  and  does  not  ripen  into  an 
absolute  ownership.4  The  right  of  a  pledgee  of  such  nego- 
tiable bonds  to  sell  is  not  defeated  by  the  subsequent  insol- 
vency of  the  pledger.5  A  pledgee,  holding  such  collateral 
securities  in  value  largely  in  excess  of  the  principal  debt, 
will  be  restrained  from  selling  the  whole.6 

The  holder  of  certain  railroad  bonds  as  collateral  secur- 
ity sought  by  bill  in  chancery  to  foreclose  the  equity  of 
redemption  of  the  pledger,  alleging  that  if  such  bonds  were 
sold,  enough  would  not  be  realized  to  satisfy  the  debt,  but 

1  Morris  Canal  and  Banking  Co  t>.  7  All.  23;  Wasliburn  v.  Pond,  2  Ib. 

Lewis,  supra.  474.  Brown  v.  Tyler,  8  Gray,  135; 

'Alexander  R.  R.  Co.  v.  Burke,  Hunt  v.  Nevers.  15  Pick.  500;  in  re 

supra.  Litchfield  Bank,  20  Conn.  575;  White 

«  Joliet  Iron  and  Steel  Co.  t».  Scio-  Mountain  R  R  Co.  „.  Bay  state 

to  Fire  Brick  Co..82  111.  548.  ^  Co>>  5Q  N  H  5? 

«  Hancock «.  Franklin  Ins. Co.,  114  ,  Jerome  „  McCarter>  94  u.  3.734 

Mass.  155;  Whipple  t».  Blackington,  ,  Fitzgerald  «.  Blockcr.32  Ark. 743. 
97  Mass.  476 ;  Fletcher  v.  Dickinson, 


THE  PLEDGEE'S  SALE.  157 

that  by  holding  the  bonds  until  they  were  redeemed  he 
would  obtain  payment  of  his  debt.  The  court  refused  to 
decree  a  foreclosure,  but  ordered  a  sale  of  the  bonds  and 
allowed  the  pledgee  himself  to  become  the  purchaser,  lie  not 
conducting  the  sale.1  This  decision  was  distinguished  in  a 
late  case,  as  relating  to  the  powers  of  a  simple  pledgee  only, 
and  where  the  collateral  securities  were  transferred  so  as  to 
pass  the  legal  title  thereto,  the  holder  was  given  an  order 
for  foreclosure,  with  a  short  time  for  redemption.* 

§  121.      THE   REQUIREMENTS  OP  A  VALID   SALE. — In  the 

absence  of  special  contract,  the  sale  of  negotiable  bonds 
held  as  collateral  secuiity  should  be  made  at  auction,  at  a 
public  place,  after  demand  of  payment  of  the  principal  obli- 
gation, and  default,  and  reasonable  notice  of  the  time  and 
place  of  sale.3  A  sale  of  bonds,  held  as  collateral  security 
for  a  loan,  payable  on  demand,  made  without  demand  or 
notice,  is  irregular,  to  be  affirmed  or  not  at  the  election  of 
the  pledgor.4  Where  such  bonds  had  been  sub-pledged,  a 
notice  of  the  proposed  sale  to  the  pledgee  thereof,  upon  de- 
fault, is  not  sufficient,  as  it  is  the  duty  of  the  pledgee  to  give 
notice  also  to  the  pledgor.  Nor  will  the  error  be  cured  by 
a  notice  of  thirty  days  in  which  to  redeem.5  A  sale  of 
bonds,  held  as  security  for  the  payment  of  advances,  with- 
out authority  and  without  notice,  is  a  conversion,  and 

1  Carter  v.  Wake,  L.  R.  4  Ch.  D.  sale.     The  pledgor  was  allowed  to 

405.  elect  either  to  confirm  the  sale,  and 

8  France  v.  Clark,   L.  R.  22  Ch.  claim  the  benefit  of  the  surplus,  or 

D.  830.  repudiate  the  sale,  and  hold  the  de- 

8  Washburn  v.  Pond,  2  Allen,  474;  fendant  responsible  for  the  bonds. 

Fletcher    r>.    Dickinson,    7    Ib.   23;  Strong  v.  Mechanics'  Nat.  Bank,  45 

Stearns  v.  Marsh,  4  Denio,  227.    In  N.  Y.  718. 

the  City  of  New  York  it  should  be  *  Siokes    v.   Frazier,    72  111.  428 ; 

made  at  the  Merchants'  Exchange.  Middlesex  Bank  v.  Minot,  4  Met. 

Brown  v.  Ward,  3  Duer,  660;  Cortel-  325.     The  rule  may  be  waived  by 

yon  v.  Lansing,  2  Caines'  Gas.  203  A  express    agreement.      Chouteau    v. 

pledgee,  being  unable  to  give  notice,  Allen,  70  Mo.  290. 

or  make  demand  upon  the  pledgor,  •  Fletcher  v.  Dickenson,  7  All.  25. 
sold  the  bonds  pledged  at  private 


158  NEGOTIABLE   COLLATERAL  SECURITIES. 

renders  the  pledgee  liable  for  any  subsequent  enhancement 
in  value.1 

§  122.  NOTICE  OF  SALE  OF  COLLATERAL  PAPER  WHEN 
PROVIDED  BY  CONTRACT. — The  parties  to  a  contract  of  pledge 
of  negotiable  bonds  and  coupons,  payable  to  bearer  or  holder, 
may  stipulate  that  the  pledgee  shall  have  the  right  to  sell 
such  collateral  securities,  upon  default  of  payment  of  the 
principal  debt,  at  public  or  private  sale,  without  notice  to 
the  pledgor.  Such  bonds  generally  have  a  recognized  value 
in  the  market,  and  the  good  or  bad  faith  of  the  pledgee  in 
the  realization  of  such  collateral  securities  is  a  matter  of 
easy  proof.*  A  bona  fide  sale  of  such  collateral  paper, 
made  after  default,  under  a  power  of  sale,  vesting  the  title 
in  a  purchaser  for  value,  in  good  faith,  is  not  affected  by  a 
tender  of  the  debt  and  charges  made  subsequently  thereto.3 
The  usual  requirements  of  demand  and  notice  do  not  apply 
where  by  the  contract  of  pledge,  a  power  of  sale  is  given 
upon  default  in  payment  of  the  principal  debt  at  a  definite 
time.4  And  notice  is  considered  waived  where  compliance 
with  the  terms  of  the  contract  of  pledge  requiring  notice, 
are  rendered  absolutely  impossible  by  circumstances  over 
which  the  pledgee  has  no  control.8 

§  123.  NOTICES  OF  SALE  BY  PLEDGEE  WHEN  SUFFI- 
CIENT.— Whether  the  notice  by  the  pledgee  of  sale  of 
negotiable  collateral  securities  is  sufficient  to  constitute 

1  Reed  v.  Lambert,  10  Abb.  Pr.  N.  bonds  as  security,   with  power  of 

S.  428.  sale  after  notice.  It  afterwards  failed 

1  Loomis    v.    Stave,   75    111.  623  and  closed  up,  and  thereafter  trans- 

Chouteau  v.  Allen,  70  Mo.  290.  acted  no  business,  nor  had  any  offl- 

*  Loomis  t>.  Stave,  supra.  cers.    As  performance  of  the  condi- 

4  Chouteau  v.  Allen,  supra,  where  tion  had  been  rendered  impossible 

the  pledge  of  the  bonds  as  collateral  by  the  act  of  the  party  for  whose 

was  made  in  the  body  of  the  note,  benefit  it  was  made,  the  bonds  were 

the  power  of  sale  to  arise  "on  the  allowed  to  be  sold  without  notice, 

non-performance  of  this  promise."  See  Strong  v.  Mechanics'  Nat.  Bank, 

8  City  Bank  v.  Babcock,  Holmes,  45  N.  Y.  718. 
180.     The  bank  had  pledged  certain 


THE  PLEDGEE'S  SALE.  159 

such  sale  a  valid  transaction,  is  a  question  of  fact  depend- 
ing upon  the  particular  circumstances  of  each  case.  The 
pledger  has  no  cause  for  complaint  where  notices  of  the 
sale  of  municipal  bonds  held  in  pledge  were  published  in  a 
newspaper  in  a  city  where  the  bonds, were  issued  and  at  the 
place  of  sale  thirty  days  prior  thereto,  and  that  such  bonds 
sold  at  the  place  of  sale  for  more  than  in  the  city  where 
issued,  and  the  sale  itself  was  bona  fide.1  Actual  notice  to 
the  pledgor,  a  reasonable  time  before  the  sale,  is  sufficient, 
and  will  excuse  want  of  formal  notice.8  But  notice  after 
the  sale  is  not  sufficient,  for  although  the  pledgor,  having 
notice,  might  not  have  been  able  to  raise  funds  to  pay  his 
debt  and  redeem  his  collateral  securities,  he  has  a  right  to 
be  present  at  the  sale  to  see  that  it  is  conducted  in  a  proper 
manner,  and  to  advance  his  interests  by  securing  greater 
competition.8  Where  negotiable  railroad  bonds  were 
pledged  as  collateral  security  for  the  payment  of  certain 
notes,  less  in  amount,  with  authority  to  sub-pledge  the 
securities  to  a  bank  for  other  notes  indorsed  by  the  pledgor ; 
and,  upon  default  in  payment  of  the  notes  held  by  the  sub- 
pledgee,  the  bonds  were  sold  in  New  York,  at  public  auc- 
tion, after  advertisement,  for  much  less  than  their  value, 
with  the  knowledge  and  assent  of  the  pledgee,  but  of  which 
sale  the  pledgor  received  no  notice  ;  the  loss  resulting  from 
such  sale  was  applied  in  payment  of  the  notes  held  by  the 
pledgee,  who  had  failed  to  give  the  pledgor  notice  of  the 
intended  sale,  as  was  his  plain  duty  under  the  facts  of 
the  case.4 

§  124.    RIGHT  OP  PLEDGEE   OP    NEGOTIABLE  BONDS, 

UPON    DEFAULT,    TO    ENFORCE    MORTGAGE    SECURITY. 

Pledgees  of  negotiable  coupon  bonds  of  railroad  and  other 
corporations,  secured  by  mortgage  or  trust  deed,  are  entitled 

1  Washburn   0.   Pond,    2    Allen,          •  Alexandria  R  R  Co.  v.  Burke, 
474.  22  Gratt.  254. 

*  Stokes  v.  Frazier,  72  111.  428.  *  Wasliburn  v.  Pond,  supra. 


160  NEGOTIABLE  COLLATERAL  SECURITIES. 

to  require  foreclosure  and  sale  of  the  property  covered  by 
such  mortgage  or  trust  deed,  upon  default.1  Upon  such 
foreclosure  proceedings,  the  bona  fide  holder  of  bonds  as 
collateral  security  for  a  valuable  consideration,  is  not 
limited  to  proof  of  the  amount  of  his  actual  advances,  but  is 
entitled  to  prove  the  full  face  value  of  the  bonds  held  by 
him  as  collateral  security,  and  to  share  in  the  distribution 
accordingly,  not  receiving  however  more  than  the  amount 
of  the  actual  indebtedness  secured.8  This  rule  is  applied 
in  cases  where  it  is  evident  that  the  mortgaged  property  is 
insufficient  to  pay  the  debts  with  which  it  is  encumbered. 
If  allowed  to  prove  only  for  the  sums  for  which  the  bonds 
are  held  as  collateral  security,  they  would  probably  form 
an  insufficient  security ;  but  if  the  sale  should  realize  more 
than  sufficient  to  pay  all  the  debts,  the  distribution  of  the 
proceeds  remain  under  the  direction  of  the  court.  Should 
the  pledgees  receive  an  excess  over  the  amount  of  the  debt 
for  which  the  bonds  are  pledged,  such  surplus  will  be 
held  in  trust  for  the  parties  entitled.8 

§  125.    THE  TITLE  OF  BONA  FIDE   PURCHASERS  FOB 

VALUE,    AT    SALES   OF    COLLATERAL    SECURITIES. —  Upon    a 

sale  of  negotiable  collateral  paper,  whether  coupon  bonds, 
bills  of  exchange,  or  promissory  notes,  made  in  good  faith, 
by  the  pledgee,  in  pursuance  of  a  valid  contract  of  pledge,  a 
bona  fide  purchaser  thereof  for  value  is  vested  with  an 
unimpeachable  title  to  such  collateral  securities  as  against 
all  parties.  No  relation  of  pledger  and  pledgee  exists 

1  McCurdy's  App.  65  Pa.  St.  290;  ized  to    raise    money    for  the  use 

Jesup  r>.  City  of  Racine,  14  Wis.  331 ;  of  (he  company    on   its  negotiable 

Ackerson  v.  Lodi  Branch  R.  R.  Co.,  bonds,  raised  funds  on  his  individual 

98  N.  J.  Eq.  542.  note,    pledging  the    bonds  as  col- 

*  Buncombe  v.  N.  Y.  etc.  R.  R.  Co.,  lateral,    the    money   being  applied 

84  N.  Y.  190;  s.  c.  88  Ib.  1;  Jesup  v.  to    the    use    of    the    corporation. 

City  of  Racine,  supra;  Ackerson  v.  Rice's  App,  79  Pa.  St.  168. 

Lodi  Branch  R.  R.  Co.,  supra.    The  *  Jerome  v.  McCarter,  94  U.  S.  734; 

same  rule  as  to  amount  of  recovery  Rice  v.  Southern  R.  R.  Co.,  9  i'hila. 

was  enforced  where  a  person,  author-  294. 


THE  PLEDGEE'S  SALE.  161 

between  the  pledger  who  has  permitted  his  collaterals  to  be 
sold  upon  default,  and  the  purchaser,  who  has  paid  value 
therefor  at  such  sale  .nor  is  there  any  privity  of  contract 
between  them,  nor  the  assumption  by  the  purchaser  of  any 
of  the  duties  of  a  trustee  in  relation  thereto.  The  bona  fide 
purchaser  for  value  acquires  at  such  sale  the  title  of  the 
pledgor  absolutely,  and  the  negotiable  collateral  paper  being 
under-due,  takes  the  same  free  from  antecedent  equities.1 
The  fact  that  the  negotiable  collateral  securities  sold  for 
less  than  the  amount  due  thereon  is  immaterial,  as  affecting 
the  title  of  the  purchaser,  if  the  sale  be  valid  and  the  pur- 
chase made  in  good  faith  and  for  value.9  Upon  a  valid  sale 
of  negotiable  bonds,  held  as  collateral  security,  purchasers 
thereof,  for  value,  in  good  faith,  are  bona  fide  holders  for 
value  for  the  full  face  of  such  collateral  paper,  although  the 
amount  of  the  principal  debt  for  which  the  collateral  security 
was  given  is  less  than  the  value  of  the  bonds  at  the  time  of 
the  sale.8  Where,  however,  the  purchaser  is  chargeable 
with  notice  that  the  sale  of  such  negotiable  collateral 
securities  is  fraudulent  and  unauthorized,  he  can  acquire  no 
rights  or  title  as  against  the  defrauded  pledgor,  although 
the  pledgee  offered  such  collateral  notes  for  sale,  as  the  in- 
dorsee with  full  title.4 

§  126.  THE  PLEDGEE  AS  PURCHASER  OF  NEGOTIABLE 
COLLATERAL  PAPER. — Where,  upon  a  sale  of  negotiable 
collateral  paper  by  a  pledgee,  without  authority,  the  pledgee 
himself  becomes  the  purchaser  thereof,  the  relations  ot  the 
parties  to  the  contract  of  pledge  are  not  affected.  The 
pledgee  is  not  permitted  by  such  an  act  to  change  his 

1  Lewis  v.   Mott,    36  K  Y.  395;  57 ;  Jerome  v.  Me  Carter,  94  U.  S.  734, 

Duncombfl.  N.  T.  etc.  R.B.  Co.,  84  739;    Allen   «.    Dallas    Ry    Co.,  3 

Ib.  190;  Union  Trust  Co.  e.  Rigdon,  Woods  C.  C.  316. 

93  111.  458;  Stokes  «.  Frazer,  92  111.  9  Zimpleman  v.  Veeder,  98111.  613. 

428 ;  Newport  Bridge  Co.  v.  Douglas,  *  Jerome  v.  McCarter,  94  U.  8.  734. 

12  Bush,  673;  White  Mountain  R.  R.  *  Goldsmith  v.  Trustees,  25  Minn. 

Co.  ».  Bay  State  Iron  Co.,  50  N.  H  202. 
11 


162  NEGOTIABLE  COLLATERAL  SECURITIES. 

relations  with  the  pledger  from  that  of  a  pledgee,  under  ob- 
ligations, upon  payment  to  re-deliver  such  collateral  securi- 
ties at  once,  to  the  favored  position  of  a  bona  fide  purchaser 
for  value,  with  an  absolute  title  thereto.  The  pledger, 
whether  such  sale  would  have  been  beneficial  to  him  or  not, 
is  entitled  to  regard  the  possession  of  the  pledgee,  under  such 
sale  and  purchase,  as  in  continuance  of  the  pledge  relations 
of  the  parties.1  But  a  pledgee  was  allowed  to  become  a 
purchaser  of  negotiable  bonds  where  such  bonds  having 
been  pledged  by  agreement,  a  judgment  was  also  entered 
upon  the  secured  and  other  indebtedness  of  the  pledger, 
and  the  bonds  were  sold  under  an  execution  levied  there- 
under.1 And  also  in  a  case  where  upon  a  bill  in  chancery 
for  relief  it  was  shown  that  the  collateral  security  was  a 
long-time  railroad  bond,  and  that  enough  would  not  be 
realized  at  a  judicial  sale  to  pay  the  principal  debt,  the 
pledgee  was  allowed  to  become  the  purchaser  in  order  that 
he  might  not  be  forced  to  part  with  his  security.1 

1  Walker  v.  Castle,    97   111.  582;         •  Sickles  «.  Richardson,  23  Hun. 
Stokes  v.  Frazier,  72  111.  428;  Strong      659. 

v.  Nat.  Bank,  45  N.  Y.  718 ;  Bank  v.         •  Carter  0.  Wake,  L.  R.  4  Ch.D.605. 
Dubuque  Railroad  Co.,  8  Iowa,  277; 
Killiau  v.  Hoffman,  6  Bradw.  200. 


THE  PLEDGOR'S  EIGHTS.  163 


CHAPTER  XIII. 

THE   PLEDGOR'S  RIGHTS  AS  TO   COLLATERAL  SECURITIES. 

§127.  The  pledger's  transfer  or  repledge  of  collateral  securities. 

128.  Pledger  entitled  to  surplus  proceeds  from  collaterals. 

129.  And  to  collateral  securities  upon  payment  or  tender  of  debt. 

130.  The  re-delivery  of  collateral  securities  to  the  pledgor 

131.  The  pledger's  remedy  upon  conversion  of  collaterals  by  pledgee. 

132.  Relief  of  the  pledgor  in  equity. 

133.  Equitable  conditions  of  such  relief. 

§  127.  THE  PLEDGOR'S  TRANSFER  OR  RE-PLEDGE  OP 
COLLATERAL  SECURITIES. — The  pledgor  of  negotiable  in- 
struments as  collateral  security,  although  he  has  indorsed 
the  same  to  the  pledgee  so  as  to  pass  the  legal  title  thereto, 
retains  such  a  residuary  interest  therein  that  in  cases 
where  such  collateral  paper  is  of  greater  value  than  the  debt 
he  may  make  a  further  disposition  of  them  by  pledging  the 
same  for  another  loan,  and  the  rights  thus  acquired  are 
protected.  Where  the  indorsement  of  such  negotiable  col- 
lateral notes  has  been  made  by  the  pledgor  in  blank,  and 
they  remain  so  indorsed  in  the  hands  of  the  pledgee,  the 
pledgor  is  permitted  to  make  a  further  transfer  by  special 
indorsement  to  a  third  party,  who  is  entitled  to  maintain  an 
action  thereon  in  his  o\vn  name  as  indorsee,  upon  his  dis- 
charge of  the  debt  for  which  the  notes  were  held  as  collat- 
eral security  before  obtaining  judgment.1  A  re-pledge  of 
the  collateral  securities  by  the  pledgor  binds  the  pledgee, 
upon  notice,  as  to  any  surplus  after  the  repayment  of  his  own 
advances.*  Where  collateral  notes  were  transferred  for  a 

1  Fisher  v.  Bradford,  7  Greenl.  28;  405 ;  Ferguson  v.  Union  Furnace  Co., 

Pierce  v.  Kearney,  5  Hill,  £2;  9  Wend.  345;  Sanders  V.  Davis,  13  B. 

Thompson  v.  Hewitt,  6  Ib.  254.  Hour.  342.  See  Hartley  v.  Russell, 

a  Whitaker  v.  Sumner,   20  Pick.  2  Sim.  &  S.  214 


164  NEGOTIABLE  COLLATERAL   SECURITIES. 

loan  for  less  than  half  their  value,  and  the  pledger  made  a  re- 
pledge  of  the  same  for  another  loan,  and  the  maker  died  and 
the  pledger  became  insolvent,  the  first  pledgee,  having  fore- 
closed the  title  of  the  second  pledgee,  and  the  pledger's 
trustees  having  disclaimed,  was  allowed  to  prove  for  the 
full  face  of  the  collaterals  against  the  maker's  estate,  the 
actual  recovery  to  be  limited  to  the  amount  due  on  the 
principal  debt,  interest,  and  costs.1 

§  128.  THE  PLEDGOR  ENTITLED  TO  SURPLUS  PROCEEDS 
FROM  COLLATERAL  SECURITIES. — Where  the  collateral  se- 
curities deposited  by  the  pledger  for  his  principal  note  are 
greater  in  amount  than  the  note,  and  the  pledgee  has  col- 
lected the  same  by  suitor  in  some  other  manner  has  realized 
the  value  thereof,  the  pledgor  is  entitled  to  the  surplus 
remaining  after  the  payment  of  the  debt  and  proper  charges 
in  and  about  the  collection  of  the  securities.  This  residuary 
interest  of  the  pledgor  in  the  collateral  notes  is  sufficient, 
where  the  act  of  the  pledgee  is  a  valid  realization  of  them, 
to  sustain  an  action  for  the  surplus  as  for  money  had  and 
received  to  his  use.  Where  the  act  of  sale  is  a  tort,  the 
action  may  be  for  conversion  of  the  collateral  notes,  and 
the  damages  recovered  will  be  subject  to  the  set-off  of  the 
amount  of  the  debt ;  or  the  tort  may  be  waived,  and  the 
other  action  brought.*  Demand  should  be  made  for  the 
surplus,  as  interest  thereon  will  otherwise  only  run  from 
the  time  of  the  service  of  the  summons  in  the  action  for 
money  had  and  received.8  A  government  bond,  payable 
in  fourteen  years,  was  pledged  as  collateral  security  for  a 
negotiable  note  for  the  same  amount,  due  in  three  months. 
The  note  not  being  paid  at  maturity,  the  pledgee  continued 
to  hold  the  collateral  bond  until  the  note  was  outlawed ; 

1  In  re  Burrell,  L.  R  7  Eq.  899.  Hauser  t>.  same,  43  Ga.  415;  Rice  v. 

*Thayer  v.  Mann,  19  Pick.  535;  Benedict,  19  Mich.  182;  Rohrle  «. 

Hancock  t>.  Franklin  Ins.  Co.,  114  Stidger,  50  Cal.  207;  Hilton  ».  War- 

Mass.  155;  Hunt  v.  Nevers,  15  Pick,  ing,  7  Wis.  492. 

600;  Overstreet  v.  Munn,  36  Ala.  666;  •  Hunt  v.  Nevers,  15  Pick.  500. 


THE  PLEDGOR'S  BIGHTS.  165 

but  shortly  before  the  maturity,  the  pledger  tendered  the 
amount  of  his  note  in  currency  and  demanded  his  collateral 
bond.  The  pledgee  refused  to  deliver,  and  at  its  maturity, 
collected  the  bond  in  gold,  then  worth  $1.74  in  currency. 
The  pledger  brought  an  action  for  money  had  and  re- 
ceived, and  was  given  a  judgment  for  the  surplus,  after 
paying  the  debt.1 

§  129.  AND  TO  COLLATERAL  SECURITIES  UPON  PAY- 
MENT OR  TENDER  OF  DEBT. — The  pledger  is  entitled  to  a 
re-delivery  of  the  collateral  securities  deposited  by  him, 
upon  payment  of  the  principal  debt,  or  a  tender  thereof.* 
After  such  payment  or  tender,  the  pledgee  has  no  authority 
to  transfer  such  securities.  The  debt  being  discharged,  his 
interest  therein  is  at  an  end.8  The  pledger  is  also  entitled 
to  a  re-delivery  of  collaterals  upon  a  mutual  rescission  of 
the  contract  ;4  but  a  mere  offer  to  pay,  without  an  actual 
tender,  is  not  sufficient  to  entitle  the  pledger  to  bring  an 
action  to  recover  such  collateral  securities.1  And  if  upon 
suit,  reliance  is  placed  upon  a  tender  of  the  principal  debt, 
the  pledgee  is  required  to  keep  the  tender  good  by  paying 
the  money  into  court.8  The  rule  does  not  apply  in  the  case 
of  a  wrongful  sale  of  such  collateral  securites  by  the 
pledgee.  The  pledgee  having  already  received  the  pro- 

1  Hancock   v.  Franklin   Ins.  Co.,  v.  Hills,  8  Me.  383;  G.  &  S.  W.  R.  R. 

114  Mass.  155.  Co.®.  Stahl,  103  111.  67;  Schoole  v. 

'Whipple     v.     Blackington,    97  Sail,  1  Sch.  &  Lef.  176;  Merchants' 

Mass.  476;  Hale  v.  Rider,  5  Cush.  Bank  v.  Maud,  18  W.  R.  312.    See 

231 ;  Bowditch  v.  Green,  3  Met.  360;  Walker  v.  Jones,  L.  R.  1  P.  C.  50. 

Bank  of  Rutland  v.  Woodruff,  34  Vt.  8  Bowditch  v.  Green,  3  Met.  80. 

89;  Benon  v.  Paquin,   49  Ib.  199;  4Burlingame  v.  same,  7  Cow.  92; 

Spalding  v.  Bank,  9  Pa.  St.  28;  Stu-  Rice  v.  Peet,  15  Johns.  503. 

art  v.  Bigler,  98  Ib.  80;    Farwell  V.  5  Lewis  v.   Mott,   36  N.  Y.  402; 

Importers' Nat.  Bank,  90  N.  Y.  483,  Strange    v.    Blake,  46    Barb.    222; 

489;    Wilson  v.  Little    2  Ib.  448 ;  Bateman  v.   Poole,    15  Wend.  637; 

Lewis  v.  Mott,  36  Ib.  402;   Ocean  Edmundson   ».  McLeod,  16  N.  Y. 

Nat.  Bank  v.  Faut,  50  Ib.  477;  Me  543;  Talty  v.  Freedmen's  Trust  Co., 

Lean  v.  Walker,  10  Johns.  471 ;  Over-  93  U.  S.  321. 

street  ®.  Munn,  36  Ala.  649;  Over-lock  l  Smith  v.  Felton,  85  Lid.  223. 


166  NEGOTIABLE   COLLATERAL   SECURITIES. 

ceeds  of  such  securities,  to  require  a  tender  of  the  prin- 
cipal debt  before  action  on  the  tort  would  be  useless,  as 
the  amount  of  the  debt  is  usually  deducted  from  the  dam- 
ages.1 Where  a  creditor  accepts  collateral  security  from 
an  administrator  without  knowledge  of  the  insolvency  of 
the  estate,  he  is  not  required  to  re-assign,  and  accept  a 
dividend,  upon  the  estate  proving  insolvent.* 

§  130.  THE  RE-DELIVERY  OP  COLLATERAL  SECURI- 
TIES TO  THE  PLEDGOR. — A  pledgee  may,  upon  agreement 
or  at  his  pleasure,  re-deliver  collateral  securities  to  the 
pledger  without  affecting  his  right  to  proceed  upon  the 
original  demand,  even  although  there  are  other  creditors  to 
whom  nominally  the  pledgee  occupies  the  relation  of  trus- 
tee, if  there  be  no  violation  of  his  duty  in  that  character.8 
Upon  a  relinquishment  of  securities,  it  is  not  champerty, 
where  a  debtor  gives  to  the  creditor  a  lien  on  other  securi- 
ties in  the  hands  of  a  third  person,  with  authority  to  sue 
the  latter,  and  agreeing  to  use  his  best  endeavors  to  assist 
in  adjusting  his  accounts  with  the  holder  and  in  recovering 
his  securities.  The  transaction  is  simply  an  assignment  of 
an  equity  of  redemption  in  such  securities  in  exchange  for  the 
prior  securities  surrendered.4  Where  bonds  were  pledged 
as  collateral  security,  and  upon  maturity,  the  pledgee 
received  other  collateral  securities  for  a  valuable  considera- 
tion, upon  an  agreement  to  surrender  the  bonds,  and  no 
demand  was  made  therefor,  and  no  opportunity  given  for 
re-delivery,  the  pledgee  was  not  answerable  for  a  subse- 
quent depreciation  in  the  value  thereof,  while  in  his  pos- 
session.* 

§  131.  THE  PLEDGOR'S  REMEDY  UPON  CONVERSION  OF 
COLLATERALS  BY  PLEDGEE. — After  a  wrongful  sale  by  the 

1  Fletcher  v.  Dickinson,  7Allen,23.  *  Hartley  ®.  Russell,  2  Sim.  &  8. 

1  Kittera's  Est.,   17  Pa.  St.  416;  244. 

Strange  v.  Adams.  30  Vt.  220.  •  Williamson  v.  McClure,  37  Pa.  St. 

•  In  re  Dyott's  Est.  2  W.  &  S.  463.  402. 


THE  PLEDGOR'S  RIGHTS.  167 

holder  of  negotiable  paper  as  collateral  security,  the  pledgor 
is  entitled  to  his  action  of  tort  against  the  wrong-doer. 
Nor  is  he  required,  as  a  preliminary  to  the  commencement 
of  the  same,  to  tender  the  amount  due  nor  demand  a  return 
of  the  securities,  in  case  where  by  the  tortious  sale  the 
pledgee  has  realized  more  than  enough  to  pay  the  debt  of  the 
pledgor.  Under  such  circumstances,  a  tender  of  the  amount 
of  the  principal  notes  would  be  a  useless  ceremony.1 
Where  the  pledgee  has  sold  the  whole  of  such  marketable 
securities  at  a  sacrifice,  when  a  partial  sale  would  have 
realized  enough  to  have  discharged  the  indebtedness  for 
which  they  were  held  as  collateral  security,  he  may  be  re- 
quired to  replace  those  sold  in  excess;  or,  if  the  pledgor  has 
bought  other  securities  in  its  place,  may  be  required  to  pay, 
as  damages,  the  difference  between  the  price  for  which  the 
excess  sold,  and  that  paid  by  the  pledgor  to  replace  it.1 
The  acceptance  by  the  pledgor  of  the  surplus  arising  from 
an  illegal  sale  is  no  waiver  of  the  right  to  damages  arising 
from  the  sale.3  But  the  tort  may  be  waived,  and  the  sale 
ratified,  and  by  an  action  for  money  had  and  received,  the 
pledgor  may  recover  any  surplus  remaining  in  the  hands  of 
the  pledgee  after  the  satisfaction  of  the  debt.4 

Where,  pending  suit  upon  the  principal  note,  the 
pledgee,  without  the  knowledge  of  the  pledgor,  sells  the 
collateral  securities  for  the  amount  of  the  debt,  but  gives  no 
credit  therefor,  the  pledgor  having  paid  the  judgment  upon 
the  principal  note,  is  entitled  to  recover  from  the  pledgee  the 
amount  received  by  him  upon  such  sale.6  Nor  will  it  be 
any  defense  to  an  action  for  the  conversion  of  bonds  held  as 
collateral  security,  where  a  tender  of  payment  of  the  debt 
and  demand  for  the  return  of  the  collaterals  had  been  made, 
that  afterwards  the  pledgor  used  the  money  and  failed  to 
bring  it  into  court,  as  the  amount  due  and  tendered  would 

1  Fletcher  v.  Dickinson,  7  All.  23;          8  Ibid. 

Cortelyou  v.  Lansing,  2  Caines'  Cas.          4  Hancock  v.  Franklin  Ins.  Co., 

203.  114  Mass.  155. 

8  Fitzgerald  v.  Blocker,  32  Ark.  742.         •  Dorrill  ».  Eaton,  35  Mich.  302. 


168  NEGOTIABLE  COLLATERAL  SECURITIES. 

necessarily  be  deducted  and  allowed  to  the  defendant  in 
fixing  the  amount  of  damages.1  The  same  sale  of  damages, 
the  value  of  the  collaterals  at  the  time  of  conversion,  less 
the  amount  of  debt,  was  approved  in  a  Massachusetts  case.* 
The  circulating  bills  of  a  bank  were  pledged  as  col- 
lateral security  for  a  loan,  under  an  agreement  that  they 
should  not  be  put  into  circulation  until  default.  Soon 
after  default,  the  pledgee  still  holding  the  bills,  the  bank 
became  insolvent,  but  the  pledgee,  having  knowledge 
thereof,  sold  the  bills,  without  notice  to  the  bank  or  its  re- 
ceiver, and  then  claimed  the  balance  of  the  loan  from  the 
assets  of  the  bank,  and  the  holders  of  the  bills  also  filed 
claims.  The  sale  of  the  bills  being  unauthorized,  the  rule  of 
damages  applied  was  the  actual  injury  suffered,  being  the 
amount  of  dividends  paid  the  holders  of  the  bills,  which  was 
applied  in  reduction  of  the  claim  of  the  pledgee  upon  the 
original  loan.8 

§  132.  RELIEF  OP  PLEDGOR  IN  EQUITY. — Equitable 
aid  and  relief  is  usually  extended  to  the  pledger  of  negotia- 
ble instruments,  where  he  seeks,  upon  proper  terms,  to  re- 
deem collateral  securities,  and  the  transactions  between 
the  parties  to  the  contract  of  pledge,  and  third  persons 
interested,  are  complicated,  or  it  is  sought  to  avoid  a  multi- 
plicity of  suits,  or  upon  any  other  recognized  head  of 
equity  jurisprudence.4  A  court  of  equity  will  take 
jurisdiction  of  such  matters  upon  the  ground  that  such  col- 
lateral securities  constitute  a  trust  fund,  and  that  it  has 
jurisdiction  to  order  an  account  thereof,  to  convert  the 
securities  into  cash,  and  distribute  the  proceeds  arising 


1  Wyckofl  v.  Anthony,  90  N.  Y.  Hasbrouck  v.  Vandcrvoort.  4  Sandf. 

442.  %  Sup.  Ct.  74;  Hart  t>.  Ten  Eyck,  2 

*  Hancock  v.  Franklin  Ins.  Co.,  114  Johns.  Ch.  100;  Conyngham's  App. 
Mass.  155.  54  Pa.  St.  474;  Stephens  v.  Hartley, 

» In  re  Litchfield  Bank,  28  Conn.  2  Mont.  504;  Cole  v.  Whitman,  10 

595.  Conn.  121.    See  Tally  v.  Frccdmen's 

*  French  v.  Gibbs,  105  111.   523;  Savings  Co.,  93  U.  S.  321,  326. 


THE  PLEDGOR'S  EIGHTS.  169 

from  the  sale.  Especially  is  this  the  case  where  there  is,  in 
the  contract  of  pledge,  no  time  set  for  the  repayment  of  the 
loan,  and  several  years  have  elapsed  since  the  completion  of 
the  transaction  in  which  the  pledge  of  collaterals  was 
made.1  A  bill  for  an  accounting,  and  for  redemption  of 
pledged  collaterals,  was  sustained  after  a  lapse  of  fifteen 
years  and  a  colorable  sale  of  the  property  under  foreclosure 
of  the  mortgages  executed  to  secure  the  payment  of  the 
bonds  given  in  pledge.* 

In  cases  in  which  no  time  has  been  fixed  by  the  contract 
of  pledge  of  collateral  securities,  within  which  the  pledgor 
shall  have  the  right  of  redemption,  the  time  of  redemption, 
where  a  bill  in  equity  to  redeem  has  been  filed  by  the 
pledgor,  is  not  tolled  by  the  statute  of  limitations  upon  the 
debt,  since  equity  will  render  a  decree  to  do  justice  be- 
tween the  parties  irrespective  of  the  statute.8  A  bill  in 
equity  to  redeem  collateral  securities,  brought  after  a 
lapse  of  seven  years,  the  securities  having  then  very 
greatly  increased  in  value,  was  not  approved.4  Nor  where 
the  pledgee's  possession  had  continued  for  so  long  a  time  as 
to  raise  a  presumption  that  the  pledgor  had  relinquished 
his  title  in  satisfaction  of  his  debt.5  The  pledgor  and  his 
representatives  may  be  barred  by  laches  where  their  rights 
are  dependent  upon  compliance  with  statutory  provisions, 
or  controlled  thereby.6 

§  133.  EQUITABLE  CONDITIONS  OF  SUCH  RELIEF. 
— A  court  of  equity  will  not  lend  its  aid  to  a  pledgee  of 
collateral  securities,  where  there  has  been  a  want  of  com- 

1  Stokes  v.  Frazier,  72  111  428,  al-  *  Lockwood  v.  Cliaustilet,  1  Mod. 

though  a  fear  was  expressed  that  it  278;  Lockwood  v.  Ewer,  2  Atk.  303. 

was  carrying  the  jurisdiction  of  a  8  White  Mountain  R.  R.  v.  Bay 

court    of    equity    to  its  "furthest  State  Co.,  supra, 

limits."  *  International  Bank  v.   Jenkins, 

s  White  Mountain  R.  R.  Co.  a.Bay  104  111.  143;  Cleveland  ®.  Borem.  24 

State  Iron  Co .,  50  N.  H.  57.  N.  Y.  613 ;  Gifford  v.  Holmes,  98  U. 

*  Kemp  v.  Westbrooke,  1  Ves.  Sen.  8.  252. 
278  (Lord  Chancellor  Hardwicke.) 


170  NEGOTIABLE  COLLATERAL  SECURITIES. 

pliance  with  the  terms  of  a  statute  requiring,  to  validate  the 
contract  of  pledge,  delivery  to  and  continued  possession  by 
the  pledgee  of  negotiable  securities.  In  such  a  case  equity 
will  not  consider  as  done  what  the  parties  intended  to  do, 
so  as  to  complete  the  transfer  of  title.  Such  equitable 
powers  will  not  be  exercised,  to  the  injury  of  third  persons, 
who  have  suffered  detriment  and  acquired  consequent  rights 
by  reason  of  such  failure  to  comply  with  the  statutory  re- 
quirements.1 Nor  will  it  restrain  the  collection  of  a  judg- 
ment on  the  principal  debt  to  the  amount  of  a  draft  pledged 
as  collateral  security  therefor,  which  was  given  for  accom- 
modation, and  the  parties  to  which  had  become  insolvent, 
and  relief  is  sought  seven  years  after  the  protest  of  the 
collateral  bill.*  Relief  in  equity  will  only  be  given  upon 
the  principle  that  "he  who  asks  equity  must  do^equity,"  so 
that  a  bill  in  chancery  for  the  return  of  collaterals  will  not 
be  sustained  unless  the  debt  has  been  paid,  or  a  tender 
made,8  following  the  rule  at  common  law  that  nothing  short 
of  an  actual  payment  or  tender  of  the  debt  will  entitle  a 
pledger  to  a  return  of  the  collateral  securities.4  Where 
negotiable  promissory  notes  or  other  negotiable  securities 
are  pledged  to  secure  the  payment  of  a  specific  debt,  a  bill 
to  redeem  is  sustained,  upon  payment  of  such  debt,  although 
the  pledgee  have  other  demands  against  the  pledger.5 

1  Casey  t>.  Cavaroc,  96  U.  8.  467.  *  Jones   c.    Merchants'    Bank,    4 

»  Compton  t>.  Blair,  46  Mich.  1.  Robt.  221 ;  6  Ib.  162. 

*  Creswell  ®.  Lanahan,  2  MacAr.  8  Brown  v.  Runals,  14  Wis.  693; 

484;  Duncombe  r>.  Railroad  Co.,  84  Vanderzee  0.  Willis,  8  Brown's  Ch. 

N.  Y.  190;  s.  c.  88  Ib.  1.  20. 


USURIOUS   LOANS.  171 


CHAPTER   XIV. 

USURY,  AS  APPLIED  TO   COLLATERAL    SECURITIES. 

§134     Usury,  as  applied  to  negotiable  collateral  paper. 

135.  The  rule  as  to  collateral  securities. 

136.  The  pledgee,  not  entitled  to  collect  collateral  accommodation  paper 

on  usurious  loan. 

137.  No  enforcement  of  collateral  securities  upon  void  usurious  loan. 

138.  Estoppel  of  borrower  on  usury,  by  his  affirmative  acts. 

139.  Recovery  of  National  Banks  on  collateral  securities  for  usurious  loans. 

140.  When  usury  not  available  as  a  defense  to  collateral  paper. 

141.  Usury  not  affected  by  taking  new  securities. 

142.  Revival  of  original  valid  debt,  where  new  securities  usurious. 

§134.  USURY,  AS  APPLIED  TO  NEGOTIABLE  COLLAT- 
ERAL PAPER. — The  rights  and  remedies  of  the  holder  of 
negotiable  securities,  given  upon  a  loan  tainted  with  usury, 
are  generally  the  subject  of  statutory  regulation.  The  effect 
of  such  usury  in  the  transaction  of  loan  is,  under  some 
statutes,  to  render  the  entire  contract,  and  the  negotiable 
notes  given  in  connection  therewith,  absolutely  void,  and 
therefore  incapable  of  enforcement  in  the  hands  of  any 
holder,  even  for  value.  More  generally,  where  an  actual 
loan  of  money  has  been  made,  of  which  the  maker  of  nego- 
tiable promissory  notes  tainted  with  usury,  had  and  retains 
the  benefit,  he  is  required  to  pay  the  valid  portion  of  his 
debt,  the  penalty,  upon  proof  of  usury,  being  a  forfeiture 
either  of  all  interest,  or  of  double  the  amonnt  of  the  usuri- 
ous interest,  or  such  other  penalty  as  is  consistent  with  tho 
theory  that  usury  renders  a  contract  of  loan  not  void,  but 
voidable.  The  like  rules  prevail  as  to  the  rights  and  rem- 
edies of  the  lender  as  to  negotiable  collateral  paper,  made 
by  third  parties,  given  to  secure  the  payment  of  usurious 


172  NEGOTIABLE  COLLATERAL  SECURITIES. 

loans.  Where  the  principal  note  is  void  because  of  usury, 
the  pledgee  can  acquire  no  greater  or  better  title  to  the  col- 
lateral securities,  given  for  its  payment,  the  indorsement 
thereof  being  as  void  as  the  making  of  the  principal  notes. 
Where  the  more  equitable  rule  prevails,  the  pledgee  is 
allowed  to  enforce  the  payment  of  the  collateral  notes,  where 
received  before  maturity,  for  an  advance,  without  notice, 
given  upon  an  usurious  loan,  as  any  other  holder  for  value, 
in  the  usual  course  of  business.  A  loan  must  be  in  contem- 
plation of  the  parties,  and  the  contract  between  them  must 
be  to  pay  a  greater  interest  than  the  law  allows,  to  consti- 
tute usury.  Where  such  is  the  contract,  it  is  immaterial 
that  the  illegal  interest  is  secured  by  an  independent  instru- 
ment, or  is  included  in  the  amount  of  the  principal  note.1 

§135.  THE  RULE  AS  TO  COLLATERAL  SECURITIES. 
— As  between  parties  to  a  contract  of  loan  tainted  with 
usury,  the  illegal  consideration  affects  the  title  of  the  lender 
as  well  to  the  negotiable  collateral  securities  received  as  to  the 
principal  note  given  for  the  loan.  The  title  of  the  pledgee 
to  the  collateral  incident  is  not  more  favored  than  to  the 
principal  evidence  of  the  debt.  Where  the  latter  is  declared 
void  by  statute,  the  pledgee,  although  holding  the  negotia- 
ble collateral  paper  by  indorsement  so  as  to  become  a  party 
thereto,  is  not  allowed  to  retain  such  securities  as  against 
thepledgor,  the  indorsement  being  void  under  such  statutes, 
nor  to  enforce  them  as  against  the  parties  thereto.1  The  in- 

1  Nichols  t>.  Fearson,  7  Pet.  103;  Ramsdell  t>.  Morgan,  16  Wend.  574; 

Postlewait  c.  Garrett,  8  T.  B.  Hour.  Dean  v.  Howell,  Hill  &  D.  39;  Fish 

345;    State    v.    Boatmen's    Savings  v.  DeWolf,  4  Bosw.  573;    Western 

Inst.  48  Mo.  189;  Motte  «.  Darrell,  1  Reserve  Bank  t>.  Potter,  Clarke's  Ch. 

McCord,  350 ;  Leonard  t>.  Cox,   10  432;  DeWitt  v.  Brisbane,  16  N.  Y. 

Neb.  542;  Clark  v.  Badgeley,  9  N.  651;  Saltmarsh  e.  Tuthill,   13  Ala. 

J.  L.  233;  White  «.  Wright,  3  B.  &  410;  Carlisle  «.  Hill,    16    Ib.    406; 

C.  273;   Sheldon  v.  Haxtun,  91  N.  Gaither  v.  Fanners'  &  Mech.  Bank, 

Y.  124;  Siegert  z/.  Hamel,  Ib.  752.  1  Peters,  87;  Harrison  t>.  Hauiell,  5 

•  Corcoran  t>.  Powers,  6  Ohio  St.  Taunt.  780. 
19;  Marks  t>.  McGhee,  35  Ark.  217 ; 


USURIOUS   LOANS.  173 

oident  falls  with  the  principal,  and  as  the  debt  is  illegal  and 
void,  no  title  is  acquired  to  the  collateral  securities  which 
can  exclude  the  equitable  rights  of  third  persons.1  A  bill 
in  equity  may  be  brought  to  compel  the  surrender  of  such 
collateral  securities  pledged  for  the  payment  of  an  usurious 
debt,*  or  an  injunction  will  be  issued  to  restrain  the  pledgee 
from  selling  the  same,  or  to  stay  an  action  thereon.8 

Where  the  contract  for  loan,  represented  by  the  borrow- 
er's personal  obligation,  does  not  disclose  us.ury,  and  a  vol- 
untary deposit  of  negotiable  collateral  paper  to  secure  pay- 
ment thereof  has  been  made,  in  the  absence  of  statutory 
provision  making  such  loan  void,  the  pledger  is  required  to 
repay  the  money  actually  loaned,  with  legal  interest,  before 
entitled  to  the  aid  of  a  court  of  equity  to  obtain  a  return  of 
the  collateral  securities.4  If  the  borrower  shall  have  repaid 
the  money  obtained  upon  a  usurions  loan,  although  the  con- 
tract was  void,  neither  the  borrower,  nor  his  representatives, 
can  recover  at  law  the  principal  debt  and  illegal  interest 
paid,  although  a  court  of  equity  would  require  the  illegal 
interest  to  be  returned.5  Payments  of  such  interest  are  gen- 
erally applied  in  discharge  of  the  principal  debt.'  Where  ne- 
gotiable collateral  paper,  to  a  large  amount,  was  pledged  to 
secure  the  payment  of  promissory  notes  created  upon  a  loan  of 


1  Bailey  v.  Smith,  14  Ohio  St.  396.  •  Tiffany  V.   Boatmen's    Inst.  18 

Usury  in  a  debt  secured  by  mort-  "Wall.  375. 

gage  does  not  affect  the  validity  of  '  Moniteau   Nat.  Bank  v.  Miller, 

the  mortgage,  and  is  not  available  73  Mo.  187;  Bank  v.   Slemmons,  34 

in    defense    of    an    action    at    law  Ohio  St.  142;  In  re  Wild,  HBlatchf. 

founded  thereon.    Kelly  v.  Mobile  243;  Overholt  v.  Nat.  Bank,  82  Pa. 

etc.  Assn.  64  Ala.  501.  St.  490.      But   where  a  party  has 

*  Peters  v.  Mortimer,  4  Edw.  Ch.  given  a  note,   secured  by  mortgage, 

279.  a  subsequent  grantee  of  the  land,  in 

1  Caldwell    v.   Warehouse  Co.,  1  redeeming,  is  not  allowed  to  deduct 

Hun,  718  ;   Peters  v.  Mortimer,  su-  any  usurious  interest   paid  by  his 

pra.  grantor,  but    may    defend    against 

4  Causey  «.  Yates,  6  Humphr.  60 ;  such    interest    remaining    unpaid. 

King  «.  Green,  6  Allen,  139;  Astley  Perrin  v.  Poulson,  53  Mo.  309. 
v.  Reynolds,  2  Stra.  915;   Fitzroyj>. 
Gwiliim,  1  Term  R.  153. 


174  NEGOTIABLE  COLLATERAL  SECURITIES. 

money,  upon  an  agreement  that  the  proceeds  of  the  collat- 
eral notes  should  be  applied  in  payment  when  the  principal 
notes  became  due,  and  before  maturity  a  large  amount  was 
collected  on  the  collateral  notes,  although  such  proceeds 
were  used  by  the  pledgee  in  the  interval  without  consent, 
the  act  was  not  such  an  appropriation  as  to  create  a  defense 
of  usury  as  to  the  original  note.  The  pledgee,  having  thus 
used  the  proceeds,  was  charged  with  interest.1 

§  136.  THE  PLEDGEE,  NOT  ENTITLED  TO  COLLECT  COL- 
LATERAL ACCOMMODATION  PAPER  ON  USURIOUS  LOAN. — 
Accommodation  paper,  made  by  'a  third  person  for  the  pur- 
pose of  being  used  as  collateral  security  for  a  void  usurious 
loan,  is  also  equally  void  with  the  principal  evidences  of  in- 
debtedness, and  no  recovery  can  be  had  by  the  pledgee  as 
against  the  accommodation  maker,  or  other  parties  thereto.* 
It  is  a  good  defense  to  an  action  by  an  indorsee  against  an 
accommodation  indorser  of  a  negotiable  promissory  note  that 
the  same  was  received  by  the  indorsee  as  collateral  security 
for  the  payment  of  an  usurious  loan  between  himself  and  the 
maker.8  The  rule  is  applied  to  sub-pledges  of  accommoda- 
tion paper  as  collateral  security  for  an  antecedent  debt,  with- 
out more,  where  the  pledgee  held  the  paper  as  collateral 
security  for  a  loan  void  by  statute  on  account  of  usury.  The 
sub-pledgee,  receiving  no  better  title  (the  transaction  occur- 
ring in  New  York)  than  the  pledgee,  and  the  collateral  note 
being  void  in  the  hands  of  the  latter,  no  recovery  can  be 
had  by  the  sub-pledgee.4 

§  137.      No  ENFORCEMENT  OP  COLLATERALS   UPON   VOID 

USURIOUS  LOAN. — The  assignment  of  bonds  and  mortgages 
as  collateral  security  for  the  payment  of  an  illegal  usurious 
loan,  is  a  void  transaction,  and  the  pledger  may  maintain  an 

1  Morgan  v.  Mechanics'  etc.  Assn.  '  Dunscombe  «.  Bunker,  8  Met.  8; 

19  Barb.  584.  Weinser  v.  Shelton.  7  Mo.  237. 

•Clark  t>.  Loomis,  5  Duer,  468;  *  Bell  «.  Lent,  24  Wend.  230. 
Corcoran  t>.  Powers,  6  Ohio  St.  19. 


USURIOUS  LOANS.  175 

action  of  trover  to  recover  the  securities.1  A  bond  for  four 
thousand  dollars,  secured  by  mortgage,  was  assigned  with 
the  mortgage,  as  collateral  security  for  a  loan  of  two  thous- 
and dollars,  upon  an  usurious  agreement  that  the  pledgees 
should  retain  the  interest  on  the  four  thousand  dollars  bond 
and  when  the  full  amount  of  the  bond  was  paid,  should 
pay  the  pledgor  two  thousand  dollars.  The  pledgees, 
without  authority,  foreclosed  the  mortgage  security,  and 
sold  the  property,  becoming  the  purchasers  thereof  for  two 
thousand  dollars,  and  subsequently  selling  the  same  for  five 
thousand  dollars.  The  pledgor  was  entitled,  the  assignment 
being  void  as  the  loan  was  usurious,  to  recover  the  value  of 
the  bond  and  mortgage  at  the  time  of  the  assignment.* 

§  138.  ESTOPPEL  OF  BORROWER  ON  USURY  BY  HIS 
AFFIRMATIVE  ACTS. — Where  a  person  borrows  money  upon 
a  bond  and  mortgage,  he  may  deprive  himself  of  the  right 
to  interpose  the  defense  of  usury  by  his  own  affirmative 
acts,  as  where  he  has  given  a  certificate  that  the  bond  and 
mortgage  executed  by  him  are  good  and  valid,  and  that  he 
has  no  defenses,  equities,  or  set-offs,  at  law  or  in  equity. 
Where  this  has  been  done,  if  the  bond  and  mort- 
gage are  in  the  hands  of  an  innocent  person  who  has 
advanced  a  valuable  consideration  thereon,  without  notice 
of  equities,  on  the  faith  and  credit  of  the  representations 
contained  in  such  certificate,  the  mortgagor  is  estopped  to 
set  up  any  defense  of  usury  in  the  original  transaction.1 
This  rule  is  applied  in  favor  of  the  second  assignee  of  a  bond 
and  mortgage,  receiving  the  same  for  value,  even  with 

1  Schroeppel  v.  Corning,  5  Denio,  »  Dal  ton  v.  Smith,  86  N.  Y.  176. 

236;  s.c.,  6  N.  Y.  107;   Edwards  v.  »Wegh«.  Boy  Ian,  85  N.  Y.  394; 

Skinning,  1  Brev.  (8.  C.  Eq.)  549;  Smith  v.  Munroe,  84  Ib.  354;    Ash- 

Callunan  v.  Shaw,  24  la.  441;  Garth  ton's  App.  73  Pa.  St.  153;   Horn  «. 

9.  Cooper,  12  Ib.  364;    Tregoning «.  Coke,    51    N.    H.     287;    Ryall   v. 

Attenborough,  7  Bing.    97  ;    Har-  Rowles,  2  W.  &  T.  Lead  Cas.  Eq. 

greaves  v.  Hutchinson,  2  Ad.  &  E.  pt.  2, 1673. 
12. 


176  NEGOTIABLE   COLLATERAL  SECURITIES. 

notice,  if  the  first  assignee  holds  the  same  free  from  equi- 
ties.    His  title  is  supported  by  the  title  of  his  assignor.1 

§  139.  RECOVERY  OF  NATIONAL  BANKS  ON  COLLAT- 
ERALS FOR  USURIOUS  LOANS. — The  provisions  of  the 
National  Bank  Act  relative  to  usury,  and  the  penalties  im- 
posed therefor,  supersede  the  provisions  of  the  state  laws 
concerning  usury.*  The  United  States  Supreme  Court  have 
refused  to  declare  invalid  the  indorsement  of  a  promissory 
note  given  to  a  national  bank  as  collateral  security,  in  a 
transaction  of  loan  open  to  the  taint  of  usury,  as  the  penalty 
thus  sought  to  be  added  was  additional  to  those  provided 
by  the  National  Bank  Act.8  The  right  of  action  to  recover 
double  the  amount  of  interest  on  a  usurious  loan  to  a 
national  bank,  as  provided  by  Section  5197  of  the  National 
Bank  Act,  accrues  upon  the  actual  payment  of  the  borrower 
of  the  amount  of  illegal  interest  to  the  bank,  and  can  be 
maintained  whether  the  debt  is  paid  or  not.4  This  right 
of  the  borrower  on  an  usurious  loan  is  transferred  to  an  as- 
signee in  insolvency  or  bankruptcy  appointed  to  wind  up  his 
estate.* 

§  140.  WHEN  USURY  NOT  AVAILABLE  AS  DEFENSE 
TO  COLLATERAL  PAPER. — A  loan  made  under  a  contract 

1  Wegh  v.  Boylan,  85  N.  Y.  394.  22  Ohio  St.  492;  Citizens'  Nat.  Bank 

The  rule  as  to  sub-assignees  is  en-  t>.  Leming,  8  Int.    Rev.    Rcc.    132. 

forced  in  Ashton's  App.  73  Pa.  St.  Contra:  First  Nat.  Bank  v.  Lamb, 

153;  McConnell  v.  Wenrich,  16  Pa.  50  N.  Y.  95. 

St.  365;  Mott  v.  Clark,  9  Ib.  405.  »  Gates  v.  National  Bank,  100  U. 

•  Gates  v.  National  Bank,  100  U.  S.  239,  250. 

8.  239 ;  Barnett  v.  National  Bank,  98  *  Monongehela  Nat.  Bank  v.  Over- 

Ib.  555;  Farmers'  Nat.  Bank  t>.  Dear-  holt,  96  Pa.  St.  327. 

ing.  91  Ib.  29  ;  Tiffany  «.  Missouri  •  Crocker  v.  Nat.  Bank,  4  Dillon. 

State  Bank,  18  Wall.  409;  Davis  t>.  358;  Wright  v.  Nat.  Bank,  18  N.  B. 

Randall,  115  Mass.  547;  Central  Nat.  R.  87;    Nichols  e.  Bellows.  22  Vt. 

Bank  v.  Pratt,  Ib.  539;  Nat.  Bank  281;  Gray  v.  Bennett,  3  Met.  522; 

of  Erie  v.  Brown,  72  Pa.   St.  209 ;  Mouongehela  Nat.  Bank  v.  Overholt, 

Wiley  v.    Sturbuck,   44   Ind.  298;  supra.    Contra :  Brombey  v.  Smith, 

First  Nat.  Bauk  v,  Guarlinghouse,  5  N.  B.  R.  152. 


USURIOUS  LOANS.  177 

tainted  with  usury  cannot  be  assailed  by  a  stranger,  or 
one  not  a  party  to  it,  nor  claiming  under  the  party  in- 
juriously affected  by  it,  in  cases  where  such  contract  is  not 
absolutely  void  by  statute  but  only  voidable  at  the  election 
of  the  borrower,  or  those  privy  in  interest  or  in  contract 
with  him.1  The  rule  is  applied  in  the  case  of  makers 
of  valid  negotiable  promissory  notes,  pledged  as  collateral 
securicy  on  an  usurious  loan.  The  defense  of  usury  in  the 
original  loan  is  not  allowed  to  be  interposed  upon  an  action 
by  the  pledgee  on  the  collateral  note.  Such  makers  not 
being  either  parties  or  privies  to  the  loan  tainted  with  usury, 
cannot  litigate  the  validity  of  the  indorsement  under  which 
the  collateral  notes  are  held.*  But  where  such  collaterals, 
taken  on  an  usurious  contract,  are  rendered  void  by  statute, 
no  action  can  be  brought  on  the  collateral  notes  by  the 
pledgee,  against  the  parties  thereto,  as  the  indorsement  to 
him  is  also  void.8  Although  the  plea  of  usury  is  a  personal 
one,  intended  for  the  benefit  of  the  borrower,  a  surety  or 
accommodation  indorser  may  take  advantage  of  it.4  Nor 
will  the  usury  paid  to  one  lender  affect  the  claims  of  an- 
other lender  to  the  enforcement  of  negotiable  collateral 
paper  given  as  security  for  the  payment  of  the  money 
loaned,  where  the  money  was  obtained  as  one  loan  by  a  note 
broker  for  a  customer,  with  whom  the  collateral  notes  were 
deposited.* 

The  defense  of  usury  is  not  available  to  the  mortgagor 
as  against  an  assignee  of  a  bond  and  mortgage  which  had 
been  transferred  under  a  general  assignment  for  the  benefit 
of  creditors*  or  as  collateral  security  for  payment  of  a 

1  Dix  v.  Van  Eyck,  2  Hill,   522 ;         *  Williams  v.  Tilt,  36  N.  Y.  319. 
Post  v.  Dart,  8  Paige,  649;  Shufelt ».          *  Gaithers  «.  Farmers'  Bank,  1  Pet. 

Shufelt,  9  Ib.  145;  Johnson  v.  Hen-  37 ;  Harrison  V.   Hamell,    5  Taunt. 

ry,  10  Johns.  185;   Sands  v.  Church,  780. 

6  N.  Y.  347;   Billard  c.  Raynor,  30          *  Gray  «.  Brown,  22  Ala.  273. 
Ib.  197;  Billington  «.  Waggoner,  33          5  Little  ».  Baker,  Hoffm.  Ch.  487. 
Ib.  31;  Williams  v.  Tilt,  36  Ib.  319;          «  Chapin  v.  Thompson,  89  N.  Y. 

Green  v.  Kemp,  13  Mass.  515;  Bridge  270;  Wilkinson  v.  Dodds,  1  Johns. 

v.  Hubbard,  15  Ib.  103;   DeWolf  v.  Cas.  158 ;  Berry  v.  Van  Beuren,  17 

Johnson,  10  Wheat.  367,  393.  Johns.  436. 


178  NEGOTIABLE   COLLATERAL   SECURITIES. 

note  given  by  a  partnership.1  In  a  suit  by  the  assignee  of 
a  bond  and  mortgage  against  the  mortgagor  to  foreclose  the 
security,  the  mortgagor  is  not  permitted  to  set  up  usury  in 
the  transfer  between  the  mortgagee  and  the  assignee.4  The 
rule,  however,  is  otherwise  as  between  the  original  par- 
ties.3 

Nor  will  equity  grant  relief  to  a  mortgagor,  alleging 
usurious  consideration  in  a  transaction  where  a  mortgage  was 
given  to  secure  the  payment  of  a  loan,  against  a  threatened 
sale  of  the  property  or  other  enforcement  thereof,  except 
upon  the  equitable  condition  that  the  mortgagor  shall  pay 
to  the  bona  fide  holder  of  the  debt,  for  value,  the  principal 
sum,  with  legal  interest.  His  position,  under  such  circum- 
stances, is  different  from  that  of  one  defending  against  an. 
usurious  contract.4  Nor  can  a  purchaser  of  a  mere  equity 
of  redemption  in  premises  covered  by  a  usurious  mortgage, 
who  purchased  subject  to  the  lien  of  the  mortgage,  set  up 
usury  as  a  defense  thereto.5  And  where  the  statute  upon 
which  the  defense  of  usury  rests  has  been  repealed,  it  will 
no  longer  be  available  to  any  party.' 

§  141.  USURY  NOT  AFFECTED  BY  TAKING  NEW  SE- 
CURITIES.— The  taint  of  usury  attaching  to  the  original 
evidences  of  indebtedness  is  not  eliminated  or  defeated  by 
the  mere  substitution  of  new  securities  in  lieu  of  the  old, 
or  by  renewals  of  the  same,  in  which  the  original  usurious 
consideration  enters.'  As  between  the  parties,  the  original 

1  Stevens  a.  Reeves,  33  N.  J.  Eq.  6Ewell  <c.  Daggs.  103  U.  S.  143 

427.  (2  Sup.  Ct.  Rep.  408). 

*  Western  Reserve  Bank  t.  Potter,  *  Dunning  v.  Merrill,  Clark's  Ch. 

Clarke's  Ch.  432.  252;  Price  v.  Lyons  Bank,  33  N.  Y. 

8  Hackenstein  v.  Love,  98  Pa.  St.  55;  Tuthill  v.  Davis,  20  Johns.  285; 

518.  Reed  t.  Smith,  9  Cowen,647;  Camp- 

4  Clark  «.  Finlon,  90  HI.  348 ;  bell  v.  McHarg,  9  la.  354 ;  Tony  v. 

Tooke  v.  Newman,  75  Ib.  215  ;  An-  Grant,  10  S.  &  M.  89;  Nelson  0.  Har- 

thony  v.  Lawson,  84  Ark.  C28.  ford,  11  Neb.  465;  Moniteau  Nat. 

'Pinnell  *.  Boyd,  33  N.  J.  Eq,  Bank  v.  Miller,  73  Mo.  187;  Over- 

190;  Dolman  v.  Crane.  14  Ib.  63.  holt  v.  Nat.  Bank,  82  Pa.  St.  490- 


USURIOUS   LOANS.  179 

taint  of  usury  attaches  itself  as  well  where  a  further 
security  is  given  or  a  guaranty  is  subsequently  made,  i\i 
in  the  case  of  renewal  of  the  original  note  or  the  substitu- 
tion of  a  new  security.1  Where  parties  have  calculated 
interest  upon  the  old  securities  at  a  higher  rate  than  that 
authorized  by  law,  and  made  a  settlement  on  such  basis, 
and  the  debtor  gives  such  new  notes,  secured  by  a  mortgage, 
for  the  whole  sum  including  the  illegal  interest,  such  new 
notes,  and  the  mortgage  given  to  secure  their  payment,  are 
voidable,  and  can  not  be  enforced  as  to  the  excess  above  the 
legal  interest.8  But,  though  a  past  usurious  contract  be  the 
basis  on  which  the  parties  deal,  yet  if  that  contract  be  not 
absolutely  void,  a  subsequent  agreement  which  frees  the 
transactions  from  all  usurious  taint,  will  be  valid.  A  con- 
tract tainted  with  usury  in  one  state  may  be  a  valid  basis  for 
a  new  contract  in  another  state.8  And  where  an  usurious 
contract  has  been  mutually  abandoned,  and  the  notes 
given  therefor  surrendered,  if  the  parties  agree  upon 
the  payment  of  the  original  loan,  to  the  extent  that  it 
was  a  valid  transaction,  and  the  debtor  gives  new  notes 
therefor,  an  action  thereon  by  the  payee  is  supported,  as 
being  founded  upon  a  valuable  consideration,  free  from  the 
the  taint  of  usury.4 

§  142.  REVIVAL  OF  ORIGINAL  VALID  DEBT  WHERE  NEW 
SECURITIES  ARE  USURIOUS. — If  a  security  founded  upon  a 
prior  one  be  tainted  with  the  vice  of  usury,  and  the  prior 

Walker  v.  Bank  of  Washington,  3  *  Burnkisel  v.  Firman,   22  Wall. 

How.  62:   Harrison  v.   Hannah,    5  170;  Morris  v.  Way,  16  Ohio,  469; 

Taunt.  780;  White  v.  Wright,  4  B.  Sanford  v.  Wheeler,  13  Conn.  165; 

&  C.  273.     Only  to  the  extent  of  the  Mowry  v.  Bishop,  5  Paige,  98 ;  Nel- 

usury  in  the  old  notes.     Curtis  v.  son  v.  Hurford,  11  Neb.  465. 

Valiton,  3  Mont.  153.  *  DeWolf  v.  Johnson,  10  Wheat. 

1  Bridge  v.  Hubbard,  15  Mass.  96  ;  367. 

Brinkerhoff  «.  Foot,  1  Hoffm.  Ch.  *  Sheldon    «.  Haxtun,  91    N.  Y. 

291;  Powell  ».  Waters,  8  Cow.  669;  124. 
Reed  «.  Smith,  9  Ib.  647;  Vickey  v. 
Dickson,  35  Barb.  96. 


180  NEGOTIABLE  COLLATERAL  SECURITIES. 

one  free  from  it,  but  has  been  given  up  and  cancelled,  and 
the  new  security  is  thereafter  adjudged  void,  the  valid  note 
may  be  revived  and  enforced  as  if  the  one  tainted  with 
usury  had  never  been  given.1  Such  cancellation  and  sur- 
render of  the  prior  securities  under  such  circumstances  are 
without  consideration.  If  the  latter  securities  are  adjudged 
invalid,  the  creditor  or  pledgee  has  lost  his  debt  without 
fault  on  his  part,  and  contrary  to  the  intent  of  both  parties 
to  the  contract  under  which  the  change  of  securities 
took  place.  Upon  such  failure  of  consideration,  and 
fraud  and  mistake,  a  court  of  equity  will  annul  the  cancel- 
lation and  revive  the  securities.1 

1  Star  0.  Ellis,  6  Johns.  Ch.  395 ;         »  Burnhisel  v.  Firman,   22  Wall 
Loomis  v.  Hudson,   18  Iowa,  416;      170,  178. 
Hore  v.  Beecher,  12  Sim.  465;  East 
India  Co.  v.  Donald,  9  Ves.  284. 


PART  II. 

NEGOTIABLE  NOTES  AND  MORTGAGES. 


CHAPTER  XV. 

THE  INDORSEE'S  TITLE  TO  THE  NEGOTIABLE    NOTE. 

§143.  The  negotiable  note  and  the  mortgage  security. 

144.  The  transfer  of  note  carries  mortgage  security. 

145.  The  mortgagee,  as  trustee  for  the  indorsee. 

146.  Cases  where  security  does  not  follow  debt. 

147.  The  indorsee  subject  to  record,  and  should  record  assignment. 

148.  The  indorsee  subject  to  equities,  under  fraudulent  mortgages. 

149.  Mistake  in  mortgage  security,  no  defense  against  bona  fide  indorsee. 

150.  The  recovery  of  the  indorsee  of  mortgage  notes. 

151.  The  indorsee  of  mortgage  notes,  as  affected  by  payments  to  mortgagee. 

152.  The  indorsee  of  outstanding  notes,  when  subject  to  payments. 

153.  The  remedy  upon  the  note,  distinct  from  the  security. 

154.  Concurrent  remedies  of  indorsee  of  note  and  mortgage  . 

155.  Equitable  aid  to  the  mortgagor  and  maker  of  negotiable  notes. 

156.  The  mortgage  security  enforced,  although  note  barred. 

157.  The  contra  rule. 

158.  Application  of  proceeds  of  security  to  mortgage  notes  under  priority 

rule. 

159.  Application  of  proceeds  where,  upon  default,  all  notes  become,  and 

pro  rata. 

160.  The  equity  of  the  assigned  note  preferred. 

§143.  THE  NEGOTIABLE  NOTE  AND  THE  MORTGAGE 
SECURITY. — A  convenient  form  of  security  for  money  loaned 
is  found  in  the  negotiable  promissory  note,  secured  by  a 
mortgage  of  real  estate.  The  note  itself,  being  a  negotiable 
instrument,  has  all  the  advantages  of  commercial  paper  in 
hands  of  a  holder  for  value  in  good  faith,  and  represents  the 

(181) 


182  NEGOTIABLE  NOTES  AND  MORTGAGES. 

personal  liability  of  the  borrower,  which  can  be  enforced  at 
maturity  and  upon  default  as  in  the  case  of  ordinary  nego- 
tiable paper.  Nor  does  it  lose  its  negotiable  character  where 
secured  by  mortgage  by  an  indorsement  and  delivery  thereof 
apart  from  the  mortgage.  The  mortgage  itself  offers  a  secur- 
ity collateral  and  subsidiary  to  the  personal  obligation,  of 
which  it  is  an  incident.  In  common  with  other  collateral 
securities  a  payment  of  the  principal  note  discharges  the 
mortgage  security ;  and  if  the  security  is  foreclosed  and 
sold,  equity  applies  the  proceeds  in  payment  of  the  note. 
The  negotiable  note,  jeceived  before  maturity,  in  good  faith, 
for  value,  and  without  notice,  is  free  of  antecedent  equities, 
and  the  mortgage  security,  as  an  incident  thereof,  passes 
generally  as  free  therefrom  as  the  note ;  for  the  borrower, 
if  he  wishes  to  insist  upon  the  equities  of  a  non-negotiable 
mortgage  security,  should  give  a  non-negotiable  bond  as  rep- 
resenting the  principal  indebtedness.  By  indorsement  of  the 
note  before  maturity  and  assignment  of  the  mortgage,  and 
delivery,  notes  and  mortgages  executed  by  third  persons, 
are  used  as  collateral  security  for  the  holder's  own  notes  and 
obligations.  The  pledgee  of  notes  and  mortgages,  receiving 
the  same  without  notice,  is  a  purchaser  for  value, 
to  the  extent  of  his  advances,  and  is  entitled  upon  default  in 
the  negotiable  paper  or  of  the  conditions  of  the  mortgage 
security,  to  enforce  such  collateral  securities,  equally  with 
any  other  bona  fide  indorsee  and  assignee  for  value,  to  the 
full  amount  thereof,  irrespective  of  the  personal  evidences 
of  indebtedness  of  the  borrower  and  pledgor  in  his  posses- 
sion.1 

'National  Bank  v.  Whitney,  103  Keohane  V.  Smith,  97  Ib.  156,  159; 

TJ.  8.  99;  Swift ».  Smith,  10211).  443;  McCracken  v.  German  Ins.  Co.,  48 

National  Bank  «.  Matthews,  98  Ib.  Md.  47;  Pierce  «.  Faunce,   47  Me. 

621;  Carpenter  t>.  Longan,  16  Wall:  513;  Briggs  v.  Rice,  130  Mass.  50; 

271;    Beach  e.  Mosgrove,  16  Fed.  Smiths. Burgess,  133  Ib.  511 ; Logan 

Rep.  307;  Hayden  v.  Snow,  9  Biss.  v.  Smith,  62  Mo.  455;  Bell  v.  Simp- 

511;  Wright  v.  Ross,  86  Cal.  414;  son,  75  Ib.  485;  National  Bank  «. 

Preston  v.  Case,  42  Iowa.  549;  Inter-  Bigler,  83  N.  Y.  17;  Lewis  v.  Kirk, 

.cati-jnal  Bankc.  Jenkins,  104  111.  143;  28  Kan.  497;  Wells  ».  Wells,  53  Vt. 


INDORSEE  S   TITLE  TO  NOTE. 


183 


§  144.  THE  TRANSFER  OF  NOTE  CARRIES  MORTGAGE 
SECURITY. — The  transfer  of  a  negotiable  promissory  note, 
by  indorsement  and  delivery,  or  by  delivery  merely,  where 
indorsed  in  blank  or  payable  to  bearer,  the  payment  of  which 
is  secured  by  a  mortgage  or  deed  of  trust,  carries  with  it, 
in  equity,  the  mortgage  or  deed  of  trust  security.  The  in- 
dorsee of  the  promissory  note  is  entitled  to  the  benefits  of 
such  mortgage,  whether  an  assignment  of  the  same  is  made 
or  not1  unless  there  be  some  special  provision  to  the  con- 


1;  Whiting  0.  Paul,  13  E.  I.  40; 
Walker  0.  Lee,  14  S.  C.  142;  Heath 
0.  Silverthorne,  39  Wis.  146. 

1  Carpenter  v.  Longan,  16  Wall. 
271;  Sawyer  0.  Prickett,  19  Ib.  146;  . 
Ober  v.  Gallagher,  93  U.  S.  199 ;  New 
Orleans  etc.  Co.,  v.  Montgomery,  95 
Ib.  16 ;  National  Bank  v.  Matthews, 
08  Ib.  621;  Swift  v.  Smith,  102  Ib. 
413 ;  National  Bank  v.  Whitney,  103 
Ib.  99,  101 ;  Ellett  v.  Butt,  1  Woods, 
220 ;  Beals  ».  Neddo,  1  McCrary,  206; 
Winsted  v.  Bingham,  14  Fed.  Rep.  1; 
Hayden  v.  Snow,  9  Biss.  511 ;  Dick- 
inson v.  Worthington,  10  Fed.  Rep. 
860  ;  in  re  Allen,  12  Ib.  433 ;  Beach 
v. Mosgrove,  (McCrary,  J.)  16  Ib.307; 
Foster  0.  Fox,  4  W.  &  S.  92;  Cath- 
cart's  App.  13  Pa.  St.  416  ;  McCall  v. 
Lenox,  9  S.  &  R.  304;  Rickert  v. 
Madeira,  1  Rawle,  328 ;  Brice's  App. 
95  Pa.  St.  105;  Cullum  v.  Irwin,  4 
Ala.  452;  Johnson  v.  Hart,  3  Johns. 
Cas.  322;  Jackson  v.  Willard,  4 
Johns.  43 ;  Jackson  v.  Blodgett,  5 
Cow,  202;  Pattison  v.  Hull,  9  Ib. 
754;  National  Bank  v.  Bigler,  83  N. 
Y.  171;  Howard  v.  Entreken,  24 
Kan.  428;  Lewis  v.  Kirk,  28  Kan. 
497 ;  Burhaus  v.  Hutcheson,  25  Kan. 
631;  Kurtz  v.  Sponable,  6  Kan.  395; 
Swenson  v.  Plow  Co.  14  Ib.  388; 
Wellborn  0,  Williams,  9  Ga.  86; 
Roberts  v.  Mansfield,  32  Ib.  228; 


Moss  v.  Kessler,  60  Ib.  47  ;  Whitte- 
more  v.  Gibbs.  24  N.  H.  484 ;  Gra- 
ham 0.  Newman,  31  Ala.  497 ;  Van- 
dercook  v.  Baker,  48  Iowa,  199; 
Crow  v.  Vance,  4  Ib.  434;  Martin- 
dale  v.  Burch,  57  Ib.  292;  Sangster 
v.  Love,  11  Ib.  580 ;  Ord  v.  McKee, 
5  Cal.  616:  Gay  v.  Ide,6  Ib.  101;  Me 
Millan  v.  Richards,  9  Ib.  409; 
Hoffley  v.  Maier,  13  Ib.  14 ;  Johnson 
v.  Sherman,  15  Ib.  293;  Lord  ®.  Mor- 
ris, 18  Ib.  484;  McCarthy  v.  White, 
21  Ib.  501 ;  Willis  v.  Farley,  24  Ib. 
490;  Hurt  v.  Wilson,  38  Ib,  263; 
Stewart  v.  Preston,  1  Fla.  10;  John- 
son 0.  Carpenter,  7  Minn.  176 ; 
Humphrey  v.  Buisson,  19  Ib.  221 ; 
Hosetter0.  Allexander,  22  Minn.  559; 
Ruhling  0.  Hackett,  1  Nev.  360 ;  Sar- 
gent v.  Howe,  21  111.  148;  Mepps  v. 
Sharpe,  32  Ib.  13;  Edgerton  v. 
Young,  51  Ib.  415;  Keohane  v.  Smith, 

97  Ib.  156, 159;  Hosmer  v.  Campbell, 

98  Ib  572,  578;  Miller  0.  Larned,  103 
Ib.  563  ;  Foster  v.  Strong,  5  Bradw. 
227;   Anderson  v.  Baunigarten,   27 
Mo.  80;  Mitchell  v.  Laden,  30  Ib. 
526;  Green  0.  Chappell,  38  Ib.  213; 
Potter  0.  Stevens,  40  Ib.  229 ;  McQuie 
0.  Peay,  58  Ib.  56 ;  Linville  0.  Sav- 
age, 58  Ib.  248  ;  Kansas  City  Savings 
Ass'n  v.  Martin.  61  Ib.  435;  Christian 
0.  Newbury,  Ib.  446;  Logan  v.  Smith, 
62  Mo.  455  ;  Bell  v.  Simpson,  75  Ib. 


184 


NEGOTIABLE  NOTES   AND   MORTGAGES. 


trary.1  The  rule  applies  to  a  bond  or  other  obligation  given 
as  collateral  security  for  the  payment  of  a  promissory  note.' 
It  is  immaterial  whether  the  existence  of  the  mortgage 
security  is  known  to  the  indorsee  of  the  note  at  the  time  of 
the  transfer8  so  long  as  the  same  has  not  been  separately 
extinguished.4  Where  part  only  of  the  evidences  of  indebt- 
edness are  assigned,  only  a  pro  rata  portion  of  the  security 
follows.*  The  rule  applies  in  favor  of  notes  given  in  re- 


490  ;  Croft  «.  Bunster.  9  Wis.  503 ; 
Kelley  v.  Whitney,  41  Ib.  110; 
Woodruff  v.  King,  47  Ib.  261 ;  Cros- 
by v.  BrownsonN  2  Day,  425  ;  Pond 
v.  Clarke,  14  Conn.  334 ;  Southerin 
v.  Mendum,  5  N.  H.  420:  Page  v. 
Pierce,  26  N.  H.  317,  in  which  cases 
such  equitable  assignment  was  en- 
forced in  legal  actions;  Blunt 0.  Nor- 
ris.  123  Mass.  55 ;  Morris  v.  Bacon, 
Ib.  58;  Bryant  v.  Damon,  6  Gray, 
564 ;  Cleveland  v.  Martin,  2  Head, 
131 ;  McCallura  v.  Jobe,  9  Baxt.  168; 
Paine  v.  French,  4  Ohio,  318  ;  Swartz 
v.  Leist,  13  Ohio  St.  419;  Duncan  v. 
Louisville,  13  Bush,  385;  Schmidts. 
Frey,  5  La.  Ann.  435 ;  Pierce  v. 
Faunce,  47  Me.  513;  Gabbert  v. 
Schwartz,  69  Ind.  450;  Wright 
v.  Eaves,  10  Rich.  585  ;  Cleveland  v. 
Cohrs,  10  S.  C.  224;  Walker  v.  Lee, 
14  Ib.  142;  Perkins  v.  Sterne,  23 
Tex.  561;  Pratt  v.  Bank,  10  Vt.  293; 
Keyes  v.  Wood,  21  Ib.  331 ;  Dodge 
«.  Bank,  2  MacAr.  420 ;  Tingle  v. 
Fisher,  20  W.  Va.  497;  Martin  v. 
Moulin,  2  Burr.  979;  Duffleld  v. 
Elwes,  1  Bl.  N.  S.  497;  Walker 
v.  Jones,  L.  R.  1  Pr.  C.  50.  In  Car- 
penter v,  Longan,  supra,  it  is  said: 
"The  transfer  of  the  note  carries 
with  it  the  security  without  any 
formal  assignment  or  delivery,  or 
even  mention  of  the  latter.  If  not 
assignable  at  law,  it  is  clearly  so  in 


equity."  In  Boyd  v.  Parker,  43  Md. 
182,  where  a  mortgage  was  made  to 
secure  the  indorser  of  a  note,  ita 
benefits  enured  to  every  bona  fide 
holder  thereof.  In  France  the  mort- 
gage security  follows  the  instrument 
(Tunguier,  §  75),  and  the  Belgian 
code,  §  26,  enacts  the  same  in  ex- 
press terms. 

1  Johnson  v.  Hart,  3  Johns.  Cas. 
322 ;  Ellett  v.  Butt,  1  Woods,  220. 

*  Batesville  Inst.  v.  Kauffman,  18 
Wall.  151 ;  Hutchinson  v.  Crane,  100 
111.  269,  274;  Wright  v.  Troutman, 
81  Ib.  374. 

»  Chad  well  v.  Wheless,  6  Lea,  322; 
Keyes  v.  Wood,  21  Vt.  331. 

4  Logan  v.  Smith,  62  Mo.  425. 

8  Phelan  v.  Obey,  6  Cal.  478  ;  Grat- 
tan  «.  Wiggins,  23  Ib.  16 ;  Grapen- 
gether  v.  Fejervary,  9  Iowa,  163 ; 
Gregory  t>.  Savage,  32  Conn.  250; 
Walker  v.  Schreiber,  47  Iowa,  529; 
Sample  v.  Rowe,  24  Ind.  208  ;  Ayres 
v.  Hayes,  60  Ind.  452 ;  Duncan  v. 
Louisville,  13  Bush,  378 ;  Stockton 
v.  Johnson,  6  B.  Monr.  408 ;  Noyes 
v.  White,  9  Kan.  640 ;  Brown  v.  Del- 
any,  22  Minn.  249 ;  Foley  v.  Rose, 
123  Mass.  557  ;  Bryant  v.  Damon,  6 
Gray,  564;  Bank  v.  Tarleton.  23 
Miss.  173 ;  Henderson  v.  Herrod,  10 
S.  &  M.  631 ;  Terry  v.  Woods,  6  Ib. 
139;  Stewart  v.  Crosby,  50  Me.  130; 
Anderson  v.  Baumgartcn,  27  Mo.  80: 


INDORSEE'S  TITLE  TO  NOTE.  185 

newal  or  substitution  of  other  notes,  secured  by  mortgage,1 
subject  to  proof  that  such  notes  were  given  in  full  payment 
of  the  notes  secured  by  mortgage,  in  which  event  the 
security  ceases.*  While  the  indorsement  and  delivery  of 
a  negotiable  promissory  note,  the  payment  of  which  is  se- 
cured by  a  mortgage  or  deed  of  trust,  carries  with  it  the 
mortgage  security,  for  the  benefit  of  the  indorsee  for 
value,  an  assignment  of  the  mortgage  security  alone,  with- 
out the  personal  evidences  of  debt,  conveys  no  right  or 
title  to  the  assignee,  and  is  a  nullity.  The  mortgage  itself, 
without  the  debt  to  sustain  it,  has  no  reason  for  existence; 
when  the  debt  is  paid,  it  loses  its  vitality  as  a  valid  instru- 
ment. The  only  effect  of  the  assignment  of  a  mortgage 
by  a  mortgagee,  where  given  to  secure  the  payment  of  ne- 
gotiable collateral  notes  which  have  passed  into  possession 
of  third  persons,  indorsees  for  value,  is  to  create  a  quasi  or 
secondary  trusteeship  on  the  part  of  the  assignee  in  favor 
of  the  indorsees  of  the  paper,  the  payment  of  which  is  se- 


Mayer  «.  Campbell,  9  Ib.  279  ;  Stev-  Ib.  543 ;  Lippold  «.  Held,  57  Ib.  213; 

enson  v.  Black,  1 N.  J.  Eq.  338  ;  Rig-  Burdett  v.  Clay,  8  B.  Monr.  287 ;  Me 

ney  v.  Lovejoy,  13  N.  H.  247  ;  Page  Namara  v.  Condon,  2  Mac  Ar.  364 ; 

t>.  Pierce,  26  N.  H.  217  ;  Pattison  v.  Seymour*.    Darrow,  31    Vt.    122; 

Hull,  9  Cow.  747;  Jackson  v.  Blod-  Howard    Bank    v.   Loomis,  51  Ib. 

gett,  5  Ib.  202;  Green  v.  Hart,    1  349;  Bailey  «.  Merrick,  50  Me.  171; 

Johns.  580;  Prescott  v.  Hull,  17  Ib.  Verner  v.  Johns,  15  S,  C.  613;  Bos- 

284;  Beresford  v.  Ward,  1  Disney,  wellfl.  Goodwin,  31  Conn.  79;  Lever 

169;  Swartz  v.  Leist,  13  Ohio  St.  419;  v.  Bessenger,  9  Baxt.  393  ;  Rogers  v. 

Lynch  v.  Hancock.  14  S.C.  66;  Lang-  Traders'   Ins.    Co.,    6  Paige,    583; 

don  v.  Keith,  9  Yt.  299 ;  Keyes  v.  Tripp  v.  Vincent,  3  Barb.  Ch.  614 ; 

Wood,  21  Vt.  331  ;  Rolston  v.  Brock-  Stanton  v.  Thompson,  49  N.  H.  272  ; 

way,  23  Wis.  407;  Batesville  Inst.  Taft  z.Boyd,  13  Allen,  84;  Melledge 

v.  Kauffman,  18  Wall.  151 ;  Martin  v.  v.  Boston  Iron  Co.,  5  Cush.  158;  Cur- 

Moulin,  2  Burr,  979.    And  a  release  tis  v.  Hubbard,  9  Met.  322 ;  Parham 

of  part  of  the  debt  will  discharge  the  Mach.  Co.  v.  Brock,  113  Mass.  194  ; 

mortgage  security  pro  tanto.  Hawke  Dodge  v.  Emerson,  131  Ib  467;  Wash- 

v.  Snydacker,  86  111.  197.  ington  Co.  v.  Slaughter,  54  Ib.  265; 

1  Jone?  v.  Guaranty  etc.  Co.,  101  State  v.  Lake,  17  Ib.  219. 

U.  S.  622;  Kuhns  v.  McGeach,  38  *  Weston  v.  Wiley,  78  Ind.  54;  Al- 

Ohio  St.  468;  Christian  v.  Newberry,  ford  v.  Baker,  53  Ib.    279:  Lover  t>. 

61  Mo.  446 ;  McDonald  v.  Hulse,  16  Bessenger,  9  Baxter,  393. 


186  NEGOTIABLE   NOTES    AND   MORTGAGES. 

cured  thereby.  And  this  trusteeship  is,  upon  occasion, 
enforced  by  courts  of  equitable  jurisdiction.  The  assignee  of 
a  mortgage  security,  without  more,  obtains  no  title  or  interest 
therein.1 

§  145.  THE  MORTGAGEE  AS  TRUSTEE  FOR  THE  IN- 
DORSEE.— The  mortgagee,  or  his  assigns,  continuing  vested 
with  the  legal  estate  in  the  land,  pledged  for  the  paj'ment 
of  negotiable  promissory  notes  of  the  mortgagor,  is  a  trus- 
tee for  any  bona  fide  indorsee  of  such  notes,  for  value,  and 
is  bound  to  act  in  good  faith  in  his  relations  to  him  ;  and 
the  indorsee  has  the  right  to  control  the  security.2  Or- 
dinarily, a  mortgagee  is,  as  between  himself  and  the  mort- 
gagor, not  a  trustee  ;8  but  a  trust  is  raised  upon  the 
negotiation  for  value  of  the  negotiable  notes  secured 
thereby  in  favor  of  the  indorsee,  where  there  is  no  actual 
assignment  of  the  mortgage  security. 

§  146.  CASES  WHERE  SECURITY  DOES  NOT  FOLLOW 
DEBT. — The  rule  that  the  assignment  of  a  debt  will  carry 

1  Carpenter  v.  Longan,  16  Wall.  9  Iowa,  297 ;  Hill  «.  Edwards,  11 
271,  274;  Wanzer  «.  Gary,  76  N.  Y.  Minn.  29;  Picket  v.  Jones,  63  Mo. 
526;  Peters  «.  Jamestown  Bridge,  5  195;  Watson  v.  Hawkins,  60  Ib. 
Cal.  334;  Huntington  v.  Smith,  4  550;  Delano  v.  Bennett,  90  111.  533. 
Conn.  235  ;  Quniebang  Bank  v.  »  Phelan  v.  Olney,  6  Cal.  478;  Cut- 
French,  17  Ib.  134;  Jackson  t>.  Blod-  ler  v.  Haven,  8  Pick.  490;  Young  v. 
gett,  5  Cow.  205  ;  Same  v.  Willard,  Miller,  6  Gray,  152;  Johnson  v. 
4  Johns.  43;  Jackson  v.  Bronson,  19  Brown.  31  N.  H.  405;  Brown  ». 
Ib.  325;  Merritt  t>.  Bartkolick,  36  N.  Blydenburgh,  7  N.  Y.  141;  Water- 
Y.  44;  Johnson  v.  Cornett,  29  Ind.  man«.  Hunt,  2  R.  I.  298;  Dudley  v. 
59;  Dearborn  «.  Taylor,  18  N.  H.  Cadwell,  19  Conn.  228;  Parsons  «. 
553;  Hobson  v.  Roles,  20  Ib.  41;  Wells,  17  Mass.  425;  Sangcr  v.  Ban- 
Hayes  u.  Lewis,  17  Wis.  212;  Cleve-  croft,  12  Ib.  367;  Swartz  v.  Leist,  13 
land  v.  Cohrs,  10  8.C.  224;  Perkins  v.  Ohio  St.  419:  Johnson  v.  Carpenter, 
Sterne,  23  Tex.  561;  Hamilton  v,  7  Minn.  176,  184;  Sturtcvant  v. 
Lubukee,  51  111.  415;  Graf  ton  Bank  Jaques,  1  Allen,  523;  Torrey  v. 
c.  Foster,  11  Gray,  265;  Burdett  v.  Dearth,  53  Vt.  331;  Blumenthal  v. 
Clay,  8  B.  Mon.  287;  Perkins  «.  Jassey,  29  Minn.  177; Lucas ».  Harris, 
Stern.  28  Tex.  563;  Bayley  v.  Gould,  20  111.  165. 

Walker's  Ch.  478;  Martin  v.  McRcy-  »  Warner  v.  Jacob,  L.  R.  20  Ch.  D. 

nolds,  6  Mich.  73 ;  Rankin  t>.  Major,  220. 


INDORSEE'S  TITLE  TO  NOTE.  187 

the  security  given  for  its  payment  does  not  apply  in  cases  in 
favor  of  indorsees  of  bills  of  exchange  where  a  deed  of  trust 
having  been  given  as  collateral  security  for  their  accep- 
tance, upon  the  bankruptcy  of  the  acceptor,  the  drawer 
withdrew  his  security  ;  nor  in  favor  of  holders  of  bills  of 
exchange,  where  part  of  the  land  covered  by  a  deed  of  trust 
had  been  released  by  the  acceptor,  and  conveyed  to  a  bona 
fide  pledgee,  as  security,  for  a  valuable  consideration.1 
Nor  is  the  mortgage  security  preserved  in  favor  of  a  drawee 
of  bills  of  exchange,  where  the  mortgage  having  been  made 
to  secure  the  payment  of  certain  bills  which  were  dis- 
honored, the  drawee  accepted  and  paid  other  bills  of  like 
amount,  taking  an  assignment  of  the  mortgage.*  Nor  in 
favor  of  a  third  party,  where  a  mortgage  given  as  indemnity 
to  a  surety  upon  a  note  made  by  a  corporation  for  an  advance, 
and  the  note  was  subsequently  taken  up  by  a  third  person 
giving  his  own  note  for  the  amount.3 

§  147  THE  INDORSEE  SUBJECT  TO  RECORD  AND  SHOULD 
RECORD  ASSIGNMENT. — The  duty  of  the  indorsee  of  a 
note  and  mortgage  is  to  inquire  of  the  mortgagor  if  there 
be  any  reason  why  the  note  and  mortgage  should  not  be 
paid.4  The  indorsee  is  subject  to  any  prior  encumbrances 
appearing  on  record,  in  the  direct  line  of  the  title  of  his 
mortgage  security,  although  without  notice  thereof.6  But 
he  is  not  required  to  search  the  records  before  taking  the 
same  as  security  to  learn  if  the  grantor  or  mortgagor,  or 
grantee  or  mortgagee,  have  made  any  further  conveyances 
since  the  making  and  recording  of  the  mortgage  security. 
The  pledgee  is  chargeable,  as  said,  with  notice  of  convey- 

1  St.  Louis  Building  Assn.  v.  Clark,  B  Buchanan  v.  International  Bank, 

36  Mo.  601.  78  111.500;   U.  8.  Mortgage  Co.  v. 

8  Wilkinson  v.  Simpson,  2  Moore  Gross,  93  Ib.  497;   Hosmer  v.  Camp- 

Pr.  Co.  275.  bell,  98  Ib.  572;  Miller  «.   Lamed, 

•Corbett  v.  Woodward,  5  Sawy.  103    Ib.    562,    577;    Connecticut  v. 

403,  410.  Bradish,  14  Mass.  296. 

4  Silverman  v.  Bullock,  98  111.  17; 
Oldsfl.Cummings,  31  Ib.  188. 


188 


NEGOTIABLE   NOTES   AND   MORTGAGES. 


ances  and  encumbrances  only  in  the  direct  line  of  the  title 
he  receives  as  collateral  security.1 

As  between  the  parties,  no  record  of  any  assignment  of 
the  mortgage  security,  given  for  the  payment  of  promissory 
notes,  is  necessary  ;  but  as  against  third  parties,  even  where 
not  required  by  direct  statutory  provisions,  such  assignment 
should  be  placed  on  record,  thus  charging  all  parties  dealing 
with  the  property,  or  negotiable  securities,  with  notice  of 
the  rights  of  the  indorsee  and  assignee.  The  recording  of 
assignments  of  mortgages  is  required  to  protect  assignees 
from  future  dealings  with  the  property  by  the  mortgagee 
and  mortgagor,  and  third  parties.8  Nor  will  the  record  of  an 
assignment  of  a  promissory  note  and  mortgage  impart  any 
validity  to  such  assignment  where  there  was  no  delivery  of 
the  securities  and  the  same  were  not  in  the  possession  of 
the  pretended  assignor.  The  absence  of  possession  and  de- 
livery is  sufficient  to  put  an  assignee  upon  inquiry,  ant7 


»  Ogle  c.  Turpin.  102  111.  148.  A 
mortgagee  indorsed  the  notes,  se- 
cured by  mortgage,  to  a  bona  ride  per- 
son advancing  value.before  maturity, 
and  delivered  them  with  the  mort- 
gage. Subsequently,  obtaining  a 
deed  of  his  equity  from  the  mort- 
gagor, he  fraudulently  entered  a  re- 
lease of  the  first  mortgage  upon  rec- 
ord, and  having  recorded  his  deed, 
conveyed  the  premises  by  deed  of 
trust  as  security  for  a  further  loan 
made  by  parties  without  notice  of 
the  outstanding  notes  and  mortgages, 
of  which  no  assignment  hiid  been  re- 
corded. The  second  mortgagee  was 
protected  against  the  lien  of  the  first 
notes,  there  being  no  presumption 
that  the  payee  of  such  notes  had 
transfered  the  same  before  purchas- 
ing the  equity  of  redemption,  and 
that  reliance  might  be  placed  upon 
the  record  showing  the  release  and 
title  in  the  vendor. 


'Williams  v.  Jackson,  107  U.  S 
Rep.  478;  Flower  v.  El  wood,  66  III 
444;  Ogle  9.  Turpin,  102  111.  148; 
Howard  v.  Ross,  5  Bradw.  461; 
Smith  v.  Keohane,  97  Ib.  156;  James 
v.  Johnson,  6  Johns.  Ch.  417;  Van- 
derkemp  v.  Shelton,  11  Paige,  28 ; 
James  v.  Morey,  2  Cowen,  246 ; 
Campbell  v.  Vader,  1  Abb.  295; 
Johnson  v.  Carpenter,  7  Minn.  183; 
Gregory  v.  Savage,  32  Conn.  250  ; 
Cornog  t>.  Fuller,  30  la.  212  ;  Bank 
v.  Anderson,  14  Ib.  544;  Lewis  v. 
Kirk.  28  Kan.  497;  Burton  v.  Baxter, 

7  Blackf.    297;    Hutchins  V.    State 
Bank,  12  Met.  424;  Welsh  v.  Priest, 

8  Allen,  165 ;   Young  t>.  Miller,   6 
Gray,  152;  Mitchell  v.  Burnham.  44 
Mo.  286  ;   Bailey  v.  Myrick,  50  Ib. 
179;  Warren  v.  Homestead,  33  Ib. 
256;  Fosdick  v.  Barr,3Ohio  St.  371; 
Schwartz  «.  Leist,  13  Ib.  419;  Fisher 
t>.  Knox,  13  Pa.  St.  622  ;   Henderson 
t>.  Pilgrim,  22  Tex.  464. 


INDORSEE'S  TITLE  TO  NOTE.  189 

upon  default,  although  advancing  value,  his  claim  is  subject 
to  prior  equities  of  other  assignees  with  possession,  but  who 
had  not  placed  their  assignment  on  record.1 

§  148.  THE  INDOKSEE  SUBJECT  TO  EQUITIES  UNDER 
FRAUDULENT  MORTGAGES. — In  the  absence  of  judicial  decis- 
ions following  the  rule  as  stated  in  Carpenter  v.  Longan,9 
the  assignee  of  a  non-negotiable  chose  in  action  as  a  mort- 
gage or  deed  of  trust  of  real  estate,  although  receiving  the 
negotiable  evidences  of  the  debt  by  indorsement,  as  a  holder 
for  value,  in  good  faith,  is  subject  to  claims  for  recoupment 
or  equitable  set-off,  where  the  note  and  mortgage  or  deed 
of  trust  were  procured  by  the  false  and  fraudulent  misrepre- 
sentations of  the  mortgagee.1  The  like  rule  was  applied 
where  an  indorsee  of  a  negotiable  promissory  note,  shown 
to  be  a  forgery,  sought  to  enforce  the  mortgage  security, 
the  privileges  of  innocent  holders  of  commercial  paper  not 
applying  in  favor  of  an  assignee  of  a  mortgage,  nor  entitling 
him  although  remediless  on  the  forged  note,  to  enforce 
such  mortgage  security,  his  title  under  the  same  being  sub- 
ject to  all  defenses  arising  from  the  frauds  or  deceits  prac- 
ticed in  its  execution.4  A  deed  of  trust  to  secure  the  pay- 
ment of  negotiable  promissory  notes  being  fraudulent  and 
void,  bona  fide  indorsees  of  the  notes  for  value  are  not 
allowed  to  enforce  the  mortgage  security  as  against  judg- 
ment creditors  whose  rights  accrued  prior  to  the  indorse- 
ment of  the  notes.5  Although  the  mortgagor  is  estopped  to 
set  up  equities  arising  in  the  original  transaction,  where 
the  mortgage  security  is  assigned  with  his  consent.'  A 
mortgage  to  secure  the  payment  of  a  negotiable  promissory 
note,  given  for  the  price  of  liquors  sold  in  violation  of 

1  O'Mulcahy  «.  Holley,  23  Minn.  •  Potter   v.   McDonald,    43    Mo. 

81.  93. 

*  16  Wall.  271.  'Matthews   «.    Walwyn,  4   Ves. 
»  Melendy  v.  Keen,  89  111.  395,404.  Junr.  118;  Melendy  v.  Keen,  89  111. 

*  Tabor  v.  Foy,  56  la.  539;  Pope      395,  404. 
t>.  Jacobus,  10  Ib.  262. 


190  NEGOTIABLE  NOTES   AND  MORTGAGES. 

law,  although  such  note  and  mortgage  were  void  as 
between  the  parties'  the  note-  is  enforced  in  the  hands  of 
a  bona  fide  indorsee  for  value,9  and  also  the  mortgage, 
when  assigned  as  security  for  its  payment.8 

§  149.  MISTAKE  IN  MORTGAGE  SECURITY,  NO  DEFENSE 
AGAINST  BONA  FIDE  INDORSEE. — It  is  no  defense  against 
an  indorsee  before  maturity  of  negotiable  promissory  notes, 
secured  by  mortgage  or  deed  of  trust,  that  a  mistake  has 
been  made  in  the  drafting  of  the  mortgage  deed,  where 
such  indorsee  or  a  subsequent  purchaser  of  the  property 
has  received  the  same  in  good  faith  for  a  valuable  consid- 
eration, without  knowledge  of  defects.4  And  such  bona 
fide  indorsee  of  notes  so  secured,  for  value,  holding  without 
notice  of  a  prior  equitable  claim  or  right,  may  convey  a 
perfect  title  to  a  third  person  having  notice  of  such  equities, 
since  the  mortgage  security,  once  discharged  of  latent  equi- 
ties, it  is  immaterial  whether  subsequent  parties  receiving 
the  same  for  value  are  chargeable  or  not  with  notice  of  such 
prior  equities.6  The  rule  of  equitable  estoppel  is  applied 
as  against  an  owner  of  land,  allowing  the  title  thereto  to 
be  placed  in  the  name  of  a  third  person,  who  for  a  long 
series  of  years  is  permitted  to  appear  as  its  absolute  legal 
and  equitable  owner.  Having  obtained  loans  from  one  who 
was  without  knowledge  of  the  outstanding  equity  of  the 
owner,  and  who  advanced  his  money  on  the  credit  of  the 
title  of  the  borrower,  an  estoppel  arose  against  the  owner  to 
dispute  the  validity  of  the  title  he  has  himself  conferred,  to 
the  loss  and  hurt  of  an  innocent  pledgee  for  value,  in  the 
usual  course  of  business.* 


1  Brigham  t>.  Potter,  14  Gray,  522;  v.   Wood,    69    111.  829;    Pierce    v. 

Denny  ®.  Dana,  2  Cush.  160.  Fuunce,  47  Me.    507;    Langdou   v. 

9  Cazet  v.  Field,  9  Gray,  329.  Keith,  9  Vt.  299;  see  Drury  v.  Hay- 

•  Taylor  n.  Page,  6  Allen,  86.  den,  111  U.  8.  212,  rev.  s.  c.  9  Biss. 

4  Carpenter  v.  Longan,  16  Wall.  511. 

271;    New    Orleans    Canal    Co.    t>.  5  Pierce  v.  Faunce,  supra. 

Montgomery,  95  U.  S.  16;  Sickmon  « Suiter  v.  Baker,  54  Cal.  140 


INDORSEE'S  TITLE  TO  NOTE.  191 

§  150.  THE  RECOVERY  BY  THE  INDORSEE  OF  MORTGAGE 
NOTES. — The  recovery  by  the  indorsee  for  value  of  notes, 
seeking  in  equity  the  enforcement  of  the  mortgage  given  to 
secure  their  payment,  where  received  in  good  faith,  before 
maturity,  and  in  the  due  course  of  business,  is  the  full 
amount  of  such  notes.  Anything  less  would  be  in  violation 
not  only  of  the  promises  contained  in  the  negotiable  person- 
al evidences  of  indebtedness,  but  of  the  terms  of  the  mort- 
gage security  itself,  in  which  is  usually  recited  the  making 
and  delivery  and  form  of  the  notes  as  being  the  considera- 
tion for  the  execution  of  the  mortgage  deed.  Payments 
made  by  the  mortgagor  and  maker  to  the  mortgagee  and 
payee,  before  or  after  the  negotiation  for  value  of  such 
notes,  secured  by  mortgage,  are  without  effect  as  to  the 
amount  of  recovery  of  a  bona  tide  indorsee,  before  maturity 
of  such  collateral  securities,  for  value  advanced,  without 
notice  of  such  payments.  The  indorsee  is  entitled  to  recov- 
er the  full  amount  of  the  notes  from  the  mortgagor  and 
maker,  although  the  latter  shall  have  paid  portions  of  the 
debt  before.  The  indorsee  having  the  legal  title  to  the  ne- 
gotiable evidences  of  debt,  and  a  remedy  at  law,  a  court  of 
equity  will  not  interpose  and  take  it  from  him.  Rather,  it 
will  follow  the  law  and  allow  the  indorsee  the  benefit  of  the 
security  for  his  bona  fide  advance.1  Where,  however,  the 
promissory  note,  secured  by  mortgage,  is  not  received  so  as 
to  make  the  pledgee  a  party  thereto,  under  proper  indorse- 
ment, where  required,  the  indorsee  although  advancing 
value  takes  only  an  equitable  title  to  the  negotiable  paper, 
and  his  recovery  is  subject  to  any  valid  defenses  the  maker 
and  mortgagor  may  have  against  the  payee  and  mortgagee  ; 
nor  is  the  pledgee's  right  increased  where,  after  knowledge 
of  such  defenses,  an  indorsement  of  the  note  is  obtained.* 
An  attempt  to  transfer  such  negotiable  paper  and  mortgage 

1  Carpenter  v.   Longan,  16  Wall.  *  Osgood  V.  Artt,  11  Biss.    (15  C. 

271;  Croft  v.  Bunster,  9  Wis.  503;  L.  N.  415);  Lancaster  Nat.  Bank  v. 

Heath  v.  Silverthorne  etc.  Co.,  39  Ib.  Taylor,  100  Mass.  24;    Whistler  v. 

146.    Powell,  Mortg.  908.  Foster,  14  C.  B.  246. 


192  NEGOTIABLE  NOTES  AND   MORTGAGES. 

security  by  an  assignment  and  transfer  thereof  in  a  separate 
instrument  executed  for  an  independent  purpose,  is  not  an 
indorsement  sufficient  even  to  bring  the  assignee  within  the 
rule  which  admits  the  maker  of  a  note  to  set  up  any  valid 
defenses  available  as  between  himself  and  the  payee,  where 
it  is  held  unindorsed  by  a  third  person,  much  less  to  entitle  . 
him  to  the  privileges  of  a  holder  for  value  of  negotiable 
paper  under  proper  indorsement.  Such  assignee,  in  cases 
of  fraud,  want  or  failure  of  consideration,  or  knowledge  of 
misappropriation,  or  other  equity,  can  have  no  recovery 
either  at  law  on  the  note  or  in  equity  on  the  mortgage  se- 
curity.1 

§  151.  THE  INDORSEE  OP  MORTGAGE  NOTES,  AS  AFFECTED 
BY  PAYMENTS  TO  MORTGAGEE. — Where  a  negotiable  promis- 
sory note,  the  payment  of  which  is  secured  by  mortgage  or 
deed  of  trust,  is  indorsed  for  value,  before  maturity,  with- 
out notice,  actual  or  constructive,  of  payments  having  been 
made  thereon,  the  indorsee  is  entitled  to  have  the  mortgage 
security  enforced  for  the  whole  amount  of  the  note."  The 
like  rule  prevails,  as  between  the  maker  of  a  negotiable 
promissory  note,  secured  by  mortgage  executed  by  him,  the 
payee  and  mortgagee,  and  the  innocent  indorsee  of  the  note, 
before  maturity,  for  value,  as  to  any  payments  made  by  the 
maker  and  mortgagor  to  the  payee  and  mortgagee,  after  the 
indorsement  and  deliver}*,  although  without  notice  thereof.1 
An  indorsee  for  value  of  negotiable  paper,  secured  by  mort- 
gage, is  protected  as  against  a  subsequent  encumbrancer, 
whose  advances  were  made  for  the  express  purpose  of  pay- 
ing off  the  notes  secured  by  the  first  mortgage,  but  which 

1  Osgood  v.  Artt,  supra;  Meleudy  *  Burhans  v.  Hutcheson,  25  Kau. 

t>.  Keen,  89  111.  895.  405  ;  Peck  «.  625;  Reeves  e.  Scully,  Walker's  Oh. 

Bligh,  37  Ib.  117;  Haskell  v.  Brown,  248;  Button  v.  Ives,  5  Mich.  515; 

65  Ib.  25;  Franklin  t>.  Twogood,  18  Jones  v.  Smith,  22  Ib.  360 ;  Bank  v. 

Iowa,  515.  Anderson,  14  Iowa,  544;  McClure  v. 

1  Goodfellow  t>.  Stillwell.  78  Mo.  Burris,  16  Ib.  591 ;  Roberts  v.  Hal- 

17;  Logan  v.  Smith,  62  Ib.  55.  sted,  9  Pa.  St.  32. 


INDORSEE'S  TITLE  TO  NOTE.  193 

were  misappropriated  by  an  agent.  The  second  encumbran- 
cer should  have  required  the  surrender  and  cancellation  of 
the  long-time  notes  secured  by  the  first  mortgage,  or  in- 
formed himself  that  they  were  in  fact  paid.1  The  pro- 
duction by  a  tenant  of  notes  secured  by  mortgage,  in  an  ac- 
tion by  an  assignee  of  the  mortgage  against  a  stranger, 
creates  no  presumption  of  the  discharge  of  the  mortgage, 
without  further  evidence,  where  it  appears  that  the  notes 
were  not  paid  to  a  lawful  holder.2  A  credit  indorsed  upon 
a  note,  secured  by  mortgage,  being  only  a  receipt,  the  in- 
dorsee may  show  the  true  amount  paid,  and  recover  the 
actual  indebtedness.3 

The  rule  as  to  releases  of  mortgage  securities  was  ap- 
plied where  notes  amounting  to  $25,000,  secured  by  mort- 
gage, were  negotiated,  $5,000  of  them  to  one  innocent  in- 
dorsee for  value,  and  the  remaining  notes  to  another 
indorsee  who  advanced  the  full  value  thereof  upon  an 
agreement  that  the  mortgage  should  stand  wholly  for  his 
benefit.  A  satisfaction  of  the  mortgage  for  the  $5,000  note 
was  fraudulently  executed  by  the  mortgagee,  without  the 
knowledge  of  the  mortgagors,  and  placed  on  record.  The 
court  held  that  nothing  could  defeat  the  rights  of  the  inno- 
cent indorsee  for  value  of  the  $5,000  note,  to  the  proceeds 
of  the  mortgage  security  but  such  conduct  on  his  part  as  to 
raise  an  equitable  estoppel.  His  failure  to  give  notice  to 
the  second  purchaser,  although  aware  of  the  terms  of  the 
sale,  was  not  sufficient  to  estop  him.  The  second  purchaser 
was  guilty  of  a  want  of  care  that  must  be  regarded  as  equal- 
ly, if  not  in  a  greater  degree,  as  the  cause  of  his  loss,  as  he 
could  have  easily  ascertained  the  facts  by  a  little  inquiry 
easily  made.  It  appeared  that  no  inquiry  was  ever 
made  about  the  ownership  of  the  other  note,  although  it 
would  have  appeared  that  the  mortgagee  could  not  have 


1  Keohane  v.  Smith,  95  111.  156.  »  Richardson  v.  Hadsall,  106  111. 

»  Crocker  v.  Thompson,  3  Met.  224      476. 
13 


194  NEGOTIABLE  NOTES   AND  MORTGAGES. 

produced  it,  and  that  it  had  been  negotiated  to  a  holder 
for  value  entitled  to  the  benefit  of  the  mortgage.1 

A  release  of  record  by  a  mortgagee,  believing  the  notes 
to  be  paid,  will  not  affect  the  right  of  an  innocent  indorsee 
of  one  or  more  of  such  notes,  for  value,  to  enforce  the  mort- 
gage security.*  Nor  where,  after  an  indorsement  and  de- 
livery of  negotiable  bills  or  notes,  secured  by  mortgage, 
to  an  innocent  holder  for  value,  the  mortgagee  receives  full 
payment,  executing  a  satisfaction  on  record,  the  mortgagor 
believing  him  to  be  still  the  holder  of  the  notes.8  And  a 
purchaser,  or  subsequent  mortgagee  or  trustee  in  a  trust 
deed,  having  notice  at  the  time  of  execution  of  their  «leed, 
that  a  prior  mortgagee  or  trustee  has  released  a  mortgage  or 
trust  deed  without  payment  of  the  notes  or  their  sun-under, 
or  authority  from  the  holder  thereof,  is  subject  to  the 
equitable  rights  of  the  latter.4  A  mortgagee  may  by  his 
representations  that  his  mortgage  has  been  satisfied,  estop 
himself  as  against  a  creditor  of  the  mortgagor,  who,  upon 
the  faith  and  credit  of  such  representations  has  accepted  the 
mortgagor's  notes  in  payment  of  the  debt  due,  to  assert  that 
his  mortgage  is  superior  to  the  notes  thus  taken,  in  its  lien 
upon  the  land.* 

§  152.  THE  INDORSEE  OF  OUTSTANDING  NOTES,  WHEN 
SUBJECT  TO  PAYMENTS. — Notice  is  not  charged  from  a  fail- 
ure to  demand  the  production  of  negotiable  promissory  notes, 
as  against  a  lender  of  money  upon  other  negotiable  paper, 
secured  by  deed  of  trust,  where,  before  advancing  the  money, 
the  trustee  under  a  prior  deed  of  trust  securing  the  payment 
of  negotiable  notes,  and  the  original  holder  of  the  notes,  the 

1  Smith  v.  Stevens,  49  Conn.  181         *  Insurance  Co.  «.  Eldridge,   102 
(10  Rep.  831).  U.  S.  545. 

'  Martindale  t>.  Burch,  57  Iowa,          •  Winsmith  v.  Winsmith,  15  S.  C. 
291;  Dickinson  t>.    Worthington,  10      611. 
Fed.  Rep.  860. 

3Blurnenthal  v.  Jassey,  29  Minn. 
117;  Mead  t>.  Leavitt,  59  N.  H.  476. 


INDORSEE'S  TITLE  TO  NOTE.  195 

payee,  asserted  under  seal  in  a  release  of  their  deed  of  trust 
that  the  first  notes  had  been  paid,  and  the  records  presented 
a  clear  title.  Nor  is  it  to  be  presumed  that  such  notes  under 
the  first  deed  of  trust  were  in  the  hands  of  a  bona  fide  in- 
dorsee for  value.  Nothing  but  proof  of  knowledge,  fraud, 
or  gross  neglect  on  the  part  of  the  holder  of  the  second  set 
of  notes,  would  defeat  his  title,  and  his  claim  to  priority  in 
the  distribution  of  the  proceeds  of  the  mortgage  security.1 
The  like  rule  was  enforced  where,  after  indorsement  of  the 
negotiable  evidences  of  debt,  a  mortgagee  received  payment 
from  the  mortgagor,  entered  a  release  of  record,  and  inno- 
cent parties  then  advanced  money,  secured  by  a  new  deed 
of  trust,  without  notice  of  the  fraud.*  And  also  where  the 
mortgagee  had  indorsed  the  note  and  mortgage  as  collateral 
security,  and  then  released  the  mortgage  upon  record,  the 
land  passing  into  the  hands  of  a  bona  fide  purchaser  for 
value  ;8  and  in  favor  of  an  innocent  purchaser  for  value  of 
the  mortgaged  premises  where,  through  error,  satisfaction 
had  been  entered  of  the  mortgage,  although  some  of  the 
notes  were  held  by  indorsees  for  value,  without  notice.4 

Money  was  loaned,  through  an  agent,  upon  notes  and 
mortgages,  the  notes  being  made  payable  to  the  agent,  and 
being  indorsed  by  him,  and  with  the  mortgage  security,  for- 
warded to  the  principal,  the  agent  having  authority  to 
receive  payments  and  to  execute  releases.  Some  of  the  notes 
and  mortgages  were  negotiated  by  the  principal  to  bona  fide 
indorsees  for  value.  The  principal  and  the  indorsees  ob- 
tained their  title  subject  to  the  defense  of  payment  to  and 
release  by  the  agent.  Nor  was  it  material  that,  at  the  time 
of  payment  by  the  makers  thereof,  the  agent  was  not  in  pos- 
session of  the  notes  and  mortgages.4  And  an  indorsee  of  a 
negotiable  note,  where  the  deed  of  trust  provides  that  pay- 
ments maybe  made  on  the  note  to  the  trustee,  is  chargeable 

'Williams  «.  Jackson  107  U.  S.  •  Ayers   v.    Hays,    60   Ind.    452; 

Rep.  478.  Gregory  v.  Savage,  32  Conn.  250. 

*  Bank  v.  Anderson,  14  Iowa,  544.  5  Cowles  v.  Bums,  28  Kan.  32. 
1  Lewis  «.  Kirk,  28  Kan.  497. 


193  NEGOTIABLE  NOTES  AND  MORTGAGES. 

with  notice  thereof,  and,  failing  to  revoke  such  authority, 
is  bound  by  any  payments  so  made,  in  good  faith.1 

§  153.  THE  REMEDY  UPON  THE  NOTE,  DISTINCT  PROM 
THE  SECURITY. — The  liability  of  persons  as  fixed  by  the 
order  of  their  Uiiiues  upon  a  negotiable  promissory  note  is 
not  changed,  nor  is  the  negotiability  thereof  affected,  by 
the  fact  that  it  recites  that  its  payment  is  further  secured  by 
a  mortgage  or  deed  of  trust.  The  note  still  expresses  the 
obligation  of  the  maker  to  pay  the  sum  of  money  mentioned 
therein  absolutely  and  at  all  events,  at  maturity,  to  the 
payee  or  his  indorsee,  and  lacks  no  essential  element  of 
commercial  paper.  The  recital  that  its  payment  is  secured 
by  mortgage  or  deed  of  trust  is  not  sufficient  to  charge 
third  persons  with  knowledge  of  the  terms  of  the  mortgage, 
nor  to  put  them  upon  inquiry.9  As  with  other  commer- 
cial paper,  mere  suspicion  that  there  may  be  a  defect  in  the 
title  of  the  holder,  or  knowledge  of  circumstances  which 
might  excite  suspicion  as  to  his  title  in  the  mind  of  a  pru- 
dent man,  is  not  sufficient  to  defeat  the  title  of  an  indorsee 
or  holder  for  value.  Bad  faith  only  can  do  this.*  Nor  is 

1  Goodfellow  v.  Stillwell,  73  Mo.  promissory  note  recited  that  it  was 

17.  "secured  by  mortgage,"   and  was 

*  Carpenter  v.  Longan,  16  "Wall,  payable  in  five  years.  The  Court 
271;  In  re  Babcock,  3  Story,  393;  said  that  such  a  note  was  not  strict- 
Cranes.  March,  4  Pick.  131;  Hale  ly  "mercantile  paper,"  in  the  ordin- 
v.  Hider,  5  Cush.  231 ;  Ball  v.  Wy-  ary  meaning  of  the  term  ;  and  under 
eth,  99  Mass.  338;  Jackson  v.  Sack-  the  circumstances  of  the  case,  which 
ett,  7  Wend.  94 ;  Butler  v.  Slocmnb,  arose  from  the  grossly  fraudulent 
33  La.  Ann.  170;  Morris  v.  White,  conduct  of  a  person  entrusted  with 
28  Ib.  855;  Schmidt  v.  Frey,  5  Ib.  the  notes  and  mortgage,  the  pledgee 
435 ;  Burling  v.  Goodman,  1  Nev.  receiving  the  same,  although  ad- 
314;  Blumenthal  v.  Jassey,  30  Minn.  vancing  value,  was  charged  with 
(14  Rep.  52);  Henry  0.  Eppinger,  34  equities  of  third  persons  not  recog- 
Mich.  29,  83;  Kelly  v.  Whitney,  41  nised  in  the  case  of  the  indorsement 
Wis.  110;  Bange  v.  Flint,  25  Ib.  544;  of  ordinary  commercial  paper. 
Croft  v.  Bunster,  9  Ib.  503;  Clark  v.  •  Kelly  v.  Whitney,  41  Wis,  110; 
Figes,  2  Stark.  207;  Wright  v.  Simp-  Cromwell  v.  County  of  Sac,  96  U.  S. 
eon,  6  Ves.  728.  In  Strong  v.  Jack-  51. 
BOII,  123  Mass.  60,  the  negotiable 


INDORSEE'S  TITLE  TO  NOTE.  197 

an  indorsement  thereof  by  the  payee  and  mortgagee  "  with- 
out recourse  "  sufficient  to  charge  an  indorsee  for  value 
with  notice  of  any  defenses  of  the  maker  and  mortgagor 
against  the  note,  not  to  put  him  upon  inquiry.1  The  mort- 
gagee and  payee,  indorsing  the  mortgage  note  "  without 
recourse  "  to  a  bona  fide  indorsee  for  value,  before  maturity, 
is  liable  upon  his  implied  warranty  that  the  amount  is  due 
as  appears  by  the  note,  after  deducting  credits  indorsed 
thereon.  Should  the  mortgagee  and  payee,  however  have 
received  rents  or  profits  which  should  have  been  applied  to 
the  note  so  indorsed,  but  were  applied  to  other  notes  and 
judgments  against  the  same  debtor,  the  mortgagee  con- 
tinues liable  to  the  indorsee,  upon  his  implied  warranty, 
for  the  full  sum  appearing  due,  but  has  his  counter  remedy 
to  recover  the  amounts  thus  applied  from  his  debtor.8 

The  note  itself,  being  the  principal  evidence  of  indebt- 
edness, and  having  an  independent  vitality  of  its  own,  is 
not  affected  as  a  binding  personal  obligation  of  the 
maker,  by  a  release  of  the  mortgage  security,  or  of  any  part 
thereof.1  Nor  by  a  dismissal  of  a  suit  brought  to  foreclose 
the  mortgage  security.  The  obligation  upon  the  note  re- 
mains.4 Nor  where  the  mortgage  given  as  collateral  se- 
curity for  its  payment,  is  void  and  fraudulent,6  nor  that 
the  mortgagor  had  no  title  to  the  land.6  The  indorsee  of 
a  note  secured  by  mortgage,  is  not  required  to  release 
his  interest  in  such  mortgage  security  before  suing  the 
parties  in  an  action  upon  the  personal  evidences  of  debt.7 
And  if  in  foreclosure  proceedings  no  personal  decree  for  the 


1  Bell  v.   Simpson,   75  Mo.  490 ;  4  Longworth  v.  Flagg,   10  Ohio, 

Stevenson  v.    O'Neal,  71  111.  314;  300. 

Kelley  v.  Whitney,  supra;  Blunt  v.  *  Dorsell    v.   Mitchell,  105  U.  S. 

JSTorris,  123  Mass.  55.  430. 

2 Plains  Roth.  107111,  688  (15  C.  •  Krupp    0.  Krueggel,  12    Phila. 

L.  N.  293).  174. 

» Edgington  v.  Hefner,  81  HI.  341;  '  Hale  v.  Rider,  5  Cush.  231. 
Southerin  ®.  Mendum,  5  N.  H.  420 ; 
Sherwood  ts.  Dunbar,  6  Cal.  53. 


198  NEGOTIABLE  NOTES   AND   MORTGAGES. 

deficiency  is  given,  the  indorsee  may  bring  his  action  upon 
the  note  and  recover  the  same.1 

§  154.  CONCURRENT  REMEDIES  OP  INDORSEE  OF  NOTE 
AND  MORTGAGE. — The  indorsee  of  a  negotiable  promissory 
note,  secured  by  mortgage  or  deed  of  trust,  is  entitled,  upon 
default,  unless  restricted  by  statutory  enactment,  to  avail 
himself,  at  one  and  the  same  time,  of  his  remedy  by  action 
at  law  upon  the  personal  evidences  of  debt,  and  to  enforce 
in  equity  his  mortgage  security,  although  with  but  one 
satisfaction  of  the  debt.*  Where  the  negotiable  obliga- 
tion of  the  debtor  is  secured  by  a  deed  of  trust,  a  personal 
suit  upon  the  note  may  be  prosecuted  at  the  same 
time,  as  the  trustee  exercises  his  power  of  sale  un- 
der the  deed.3  Nor  does  it  affect  the  right  of  the 
indorsee  to  enforce  the  mortgage  or  deed  of  trust  se- 
curity that  the  note  has  been  merged  into  a  judg- 
ment. So  long  as  the  judgment  remains  unsatisfied,  the 
debt  is  unpaid,  and  the  principal  remaining,  the  mortgage 
lien  is  not  merged,  but  is  transferred  from  the  note  to  the 
judgment.4  The  costs  of  such  action  at  law  upon  the  evi- 

1  Palmer  t>.  Harris,  100  111.  276 ;  Johnson  v.  Watson.  87  Ib.  540  ;  Pal- 
Allen  t>.  Allen,  34  N.  J.  Eq.  493 ;  mer  v.  Harris,  100  Ib.  276  ;  Kellogg's 
Marston  v.  Marston,  45  Me.  412;  case,  L.  R.  3  Ch.  776;  Mason  v. 
Bradley  v.  Chester  Valley  Co.  36  Pa.  Bogg,  2  M.  &  Cr.  448. 
St.  150;  Andrews  v.  Scotton,  2  'Connecticut  M.  L.  Ins.  Co.  ». 
Bland's  Ch.  665.  Jones,  8  Fed.  Rep.  303  ;  Vansant  v. 

*  Ober  v.  Gallagher,  93  U.  S.  208;  Allmon,  23  111.  30 ;  Mester  v.  Hauser, 

Oilman  v.  Illinois  Telegraph  Co.,  91  94  111,  433 ;  Johnston  v.  Houston,  47 

TJ.  S.  603,  616;  Eubanks  v.  Lever-  Mo.    230;  Lichty  v.  McMartin,  11 

idge,  4  Sawy.  274  ;  Connecticut  Ins.  Kan.  565 ;  Dunkley  v.  Van  Buren,  3 

Co.  v.  Jones,  8  Fed.  Rep.  363;  Chap-  Johns.  Ch.  330. 

man  v.  Lee,  64  Ala.  483;    Ipswich  *  Ober  v.  Gallagher,  93  U.  S.  199  ; 

Manuf.  Co.  v.  Story,  5  Met.  312  ;  Ely  in  re  Kansas  City  etc.  Co.,  9  N.  B. 

t>.  Ely,  6  Gray,  439 ;  Longworth  «.  R.  76  ;  Palmer  v.  Harris,  100  111.  276; 

Flagg,  10  Ohio,  300 ;  Baker  v.  Leh-  Erickson   v.  Rafferty,    79  Ib.  209; 

man,    "Wright,    522 ;    Kansas  City  Morrison  v.  Morrison,  38  Iowa,  78; 

Savings  Ass'n  ».  Mastin,  61  Mo.  485  ;  Thornton  ®.  Pegg,  24  Mo.  249 ;  Zuch- 

Andrews  0.  Scotton,   2  Bland  Ch.  ter  ®.  Boehm,  53  Ga.  71 ;  Connecticut 

665 ;  Vansant  v.  Allmon,  23  111.  33 ;  M.  L.  Ins.  Co.  «.  Jones,  8  Fed.  Rep. 

Edgington  v.   Hefner,   81   111.  341 ;  803. 


INDORSEE'S  TITLE  TO  NOTE.  199 

dences  of  debt  are  a  part  of  the  mortgage  debt  to  be  re- 
covered in  foreclosure  proceedings.1  The  remedies  of  the 
indorsee,  at  law  and  in  equity,  have  been  made  in  certain 
states  the  subject  of  statutory  regulation,  the  provisions  of 
which  generally  restrict  the  indorsee  to  one  suit  at  a  time, 
or  require  primary  resort  against  the  land,  and  restrict 
the  recovery  to  an  action  on  the  note  where  the  same  has 
been  prosecuted  to  judgment,  and  prefer  equitable  juris- 
diction for  the  enforcement  of  such  mortgage  securities.* 

§  155.  EQUITABLE  AID  TO  THE  MORTGAGOR  AND 
MAKER  OF  NEGOTIABLE  NOTES. — The  mortgagor,  who  has 
executed  negotiable  notes,  is  given  the  aid  of  a  court  of 
equity  to  control  the  use  of  the  mortgage  security  in  the 
hands  of  a  bare  trustee,  where  fraud  and  a  total  want  of 
consideration  for  either  note  or  mortgage  is  shown.  Any 
defenses  available  as  against  the  real  owner  in  an  action 
upon  the  mortgage  note  are  equally  available  in  invoking 
the  preventive  powers  of  a  court  of  equity  against  the  en- 
forcement of  the  mortgage  to  secure  such  note  and  to  pre- 
vent a  negotiation  thereof.3  Where  a  mortgagee,  or  his  as- 
signee, has  separated  the  debt,  represented  by  negotiable 
securities,  from  the  mortgage  security,  so  as  to  defeat  the 
mortgagor's  right  to  a  reconveyance  of  the  estate  upon  pav- 
ment  of  the  debt,  a  court  of  equity,  at  the  instance  of  the 
mortgagor  and  ranker  of  the  notes,  will  restrain  the  collec- 
tion of  the  personal  evidences  of  debt  remaining  unpaid, 
and  settle  the  equities  of  all  parties.4 

§  156. — THE  MORTGAGE  SECURITY  ENFORCED,  ALTHOUGH 
KEMEDY  ON  NOTE  BARRED. — The  creditor,  receiving  a  mort- 

1  Pettibone  0.  Stevens,  15  Conn.  19.  Scofield  v.  Descher,  72  N.  Y.  491; 

»Ould  v.  Stoddard,  54  Cal.  613;  McKernan  v.  Robinson,  84  Tb.  105. 

Christy  v.  Dyer,  14  Iowa,  443  ;  Mor-  *  Belohradsky  v.  Kulm,  69  111.  547. 

rison    v.   Morrison,    38    Iowa,    78 ;  4  Walker  v.  Jones,  L.  R.  1  Pr.  C. 

Brown    v.    Cascaden,   43    Ib.    103;  50  ;  Lockhart  v.  Hardy,  9  Beav.  349 ; 

Johnson    v.   Lewis,    13  Minn.  364;  Palmer  v.  Hendrie,  27  Ib.  349;  s  c. 

Suydam  v.  Bartle,  9  Paige  Ch.  294;  28  Ib.  341  ;  Thornton  v.  Court,  3  DC 

Williamson  v.  Champlain,  8  Ib.  70;  G.  M.  &  G.  293. 


200 


NEGOTIABLE  NOTES  AND   MORTGAGES. 


gage  of  real  estate  as  collateral  security  for  the  payment  of 
a  negotiable  promissory  note  has  a  double  remedy  to  recov- 
er his  debt,  a  suit  in  equity  to  subject  the  land  to  its  pay- 
ment, and  an  action  at  law  upon  the  note,  and  a  recovery 
may  be  had  on  the  one,  although  there  may  be  some  tech- 
nical objection  or  difficulty  as  to  recovery  upon  the  other. 
The  statute  of  limitations  affecting  only  the  remedy  on  the 
note,  the  debt  itself  which  the  mortgage  is  given  to  secure, 
remains  unsatisfied,  and  an  enforcement  of  the  security  to 
secure  the  payment  of  such  debt  is  permitted  upon  equita- 
ble rules.1  The  like  rule  is  applied  to  deeds  of  trust  given 
to  secure  the  payment  of  promissory  notes.  The  security 
is  enforced  notwithstanding  the  bar  of  the  statute  against 
the  note.*  Nor  will  equity  enjoin  the  sale  of  land  under 
such  trust  deed,  where  the  remedy  on  the  note  is  barred  by 
the  statute,  except  upon  the  equitable  terms  of  a  payment 


1  Union  Bank  «.  Stafford,  12  How. 
340 ;  Hughes  v.  Edwards,  9  Wheat. 
489,  494;  Buckner  v.  Street,  15  Fed. 
Rep.  365 ;  Eubanks  v.  Leveridge,  4 
Sawy,  274  ;  Chapman  v.  Lee,  64  Ala. 
483  ;  Hall  v.  Deukla,  28  Ark.  507  ; 
Grant  v.  Burr,  54  Cal.  298;  Belknap 
«.  Gleason,  11  Conn.  160,166 ;  Hough 
.«.  Bailey,  32  Ib.  289  ;  Joy  v.  Adams, 
26  Me.  330 ;  Thayer  v.  Mann,  19  Pick. 
535;  Ipswich  Manuf.  Co.  v.  Storey, 
5  Met.  312  ;  Eastman  v.  Foster,  8  Ib. 
19;  Craine  v.  Paine,  4  Cush.  483; 
Lash  v.  McCormick,  17  Minn.  409  ; 
Ognum  r>.  Reynolds,  11  Ib.  459 ; 
"Wilkinson  v.  Flowers,  37  Miss.  579; 
Benson  v.  Stewart,  30  Ib.  49  ;  Nevitt 
v.  Bacon,  32  Ib.  212;  Bush  t>.  Cooper, 
26  Ib.  599 ;  Trotter  v.  Erwin,  27 
Ib.  77i ;  Miller  v.  Trustees,  5  S.  & 
M.  651 ;  Chouteau  v.  Burlando,  20 
Mo.  482  ;  Pratt  v.  Huggins,  29  Barb. 
282 ;  Heyer  «.  Pruyn,  7  Paige,  465, 
470;  Waltermire  v.  Westover,  14 
N.  Y.  19  ;  Borst  t>.  Borcy,  15  Ib.  505  ; 


Cooks  v.  Culbertson,  9  Nev.  199; 
State  v.  Watts,  45  N.  J.  L.  (14  Rep. 
467);  Fisher  v.  Mossman,  11  Ohio  St. 
42;  Smith  v.  Washington  Co,  33 
Gratt.  617  ;  Hannah  v.  Wilson,  3  Ib. 
342  ;  Richmond  v.  Allen,  25  Vt.  324  ; 
Hayes  v.  Frey,  54  Wis.  503,  519 ; 
Wiswell  v.  Baxter,  20  Ib.  630;  Spears 
0.  Hartley,  3  Esp.  81 ;  Toplis  v.  Baker, 
2  Cox.  123.  Under  the  Iowa  code  an 
action  to  foreclose  or  redeem  a  mort- 
gage is  barred  at  the  same  time  as 
an  action  at  law  on  the  debt.  Smith 
v.  Foster,  44  Iowa,  442 ;  Clinton  v. 
Cox,  37  Ib.  570 ;  Brown  v.  Rockhold, 
49  Ib.  282.  Under  the  New  Hamp- 
shire statute,  action  may  be  brought 
on  the  note  so  long  as  there  is  a  right 
of  suit  on  the  mortgage.  Colby  v. 
Everett,  10  N.  H.  429  ;  Demeritt  v. 
Batchelder,  28  Ib.  533. 

*  Wood  v.  Augustine,  61  Mo.  46  ; 
Grant  v.  Burr,  54  Cal  298 ;  Wiswell 
«.  Baxter,  20  Wis.  680  ;  Bank  of  the 
Metropolis  v.  Guttschlick,  14  Pet.  19. 


INDORSEE'S  TITLE  TO  NOTE.  201 

or  tender  of  the  debt.1  And  a  power  of  sale  given  in  a 
mortgage  continues  as  long  as  the  debt  remains  in  force  and 
unsatisfied.9  Even  where  judgment  on  the  note  has  been 
entered,  and  the  judgment  itself  is  barred  by  the  statute, 
the  creditor  is  allowed,  the  debt  not  being  paid,  to  enforce 
his  remedy  against  the  land.8 

This  right  of  the  holder  of  a  negotiable  promissory  note, 
to  the  enforcement  of  the  mortgage  security,  is  not  affected 
by  any  lapse  of  time  short  of  the  period  sufficient  to  raise  a 
presumption  of  payment.4  Such  presumption  arises  gener- 
ally where  twenty  years  have  elapsed  since  the  maturity  of 
the  debt.5  Proof  is  received  to  show  a  payment  on  account 
of  or  an  acknowledgement  of  the  debt,  and  to  rebut  such 
presumption.6  Where  a  note  payable  on  the  day  of  its  date, 
secured  by  a  mortgage,  which  was  not  recorded  for  several 
years,  and  until  after  the  death  of  the  mortgagor,  upon  an 
action  upon  the  mortgage  security,  the  note  being  barred, 
brought  still  later,  a  reasonable  presumption  arose  that  the 
note  had  been  paid,  and  a  decree  was  refused  without  a  pro- 
duction of  the  note,  as  it  might  have  passed  into  the  hands 
of  a  holder  for  value.7 

§  157.  THE  CONTRA  RULE.— In  three  or  four  states, 
however,  a  different  rule  prevails  as  to  the  recovery  of  the 
indorsee  against  the  mortgage  security  where  the  note  itself 
is  barred  by  the  statute  of  limitations.  The  rule  is  founded 

1  Grant  v.  Burr,  54  Cal.  298.  Girardeau  Co.  v.  Harbison,  53  Mo. 

5  Emory  v.  Keighan,  94  111.  543.  90 ;  Giles  v.  Baremore,  5  Johns.  Ch. 

3Hendershot    «,  Ping,   24   Iowa,  545 ;  Whitney  v.  French,  25  Vt.  663 ; 

134;  Morrison  v.  Morrison,  38  Ib.  73;  Hughes  v.  Edwards,  9  Wheat.  489; 

•  Bank  of    the    Metropolis   v.   Gutt-  Fox    v.  Blossom,    17  Blatchf.  352; 
schlich,  14  Pet.  19,  32.  Hillary  v.  Wnllcr.  12  Ves  239. 

4  Smith   t>.   Washington    Co.,    33  •  Pratt  v.  Huggins,  29  Barb.  279  ; 

Gratt.  617.  Hcycr  v.  Pruyn,  7  Paige,  465;  Hayes 

«  Blaisdell  v.  Smith,  3  Bradw.  150;  v.  Frcy,  54  Wis.  503,   519;  Bank  v. 

•  Pollock  v.  Maison,  41  111.  517  ;   Jar-  Guttschlick,  14  Pet.  19,  32. 

vis    v.    Woodruff,    22    Conn.    548;          7  Lucas  v.  Harris,  20  111.  167;  Carr 
Hough  v.  Bailey,  32  Ib.  289;  Cool-      v.  Fielden,  18  Ib.  77,  81. 
idge  v.  Larned,  8  Pick.  508 ;  Cape    . 


202  NEGOTIABLE  NOTES   AND   MORTGAGES. 

upon  the  theory  that  the  mortgage  security  is  so  completely 
au  incident  of  the  debt  it  is  given  to  secure,  that  the  debt 
being  barred,  the  mortgagee  or  the  holder  of  the  notes  is 
without  remedy  upon  the  mortgage.1  That  as  the  note  is 
the  principal  debt,  that  falling,  the  mortgage  falls  also  ;  the 
lien  created  by  the  mortgage  having  expired  by  the  death  of 
the  note,  equity  offers  no  means  of  reviving  and  enforcing 
it;  or,  in  other  words,  where  the  action  at  law  is  barred  by 
the  statute  of  limitations,  no  foreclosure  can  be  had  of  a 
mortgage  given  to  secure  its  payment.  The  principal,  hav- 
ing ceased  to  exist,  the  incident  having  nothing  to  which  it 
may  attach,  ceases  to  exist  also.*  And  the  mortgagee  can- 
not dispossess  the  mortgagor  by  an  action  of  trespass  to  try 
title,  or  ejectment.8  The  removal,  however,  of  the  bar  of 
the  statute  by  some  act  or  payment  of  the  mortgagor  and 
maker,  revives  the  mortgage  security,  and  the  holder  of  the 
note  is  allowed  to  enforce  the  same.4  The  entry  of  judg- 
ment upon  a  note,  secured  by  mortgage,  enables  the  holder 
of  the  judgment  to  enforce  the  mortgage  security,  as  against 
third  parties, during  the  term  the  judgment  continues  a  lien  ; 
and,  as  between  the  parties,  the  mortgagees  or  his  represen- 
tatives holding  such  judgment,  the  lein  of  the  mortgage  is 
continued,  and  foreclosure  decreed  at  any  time  within 
twenty  years.* 


1  Cunningham  t>.  Ha-wkins,  24  Cal.  150;  McLane  v.  Paschall,  47  Ib.  369; 

409  ;   Swenson  v.  Plough    Co.,    14  Blackwell  e.  Barnett,  52  Ib.  326. 

Kans.  388;    Chicago  Lumber  Co.  c.  'March    c.    Myers,    85    111.    177; 

Ashworth,  26  Ib.  212;  Fort  Scott  v.  Lynch  v.  Swayne,  83  Ib.  336;  Lucas 

Schulenberg,  22  Ib.  648;   Powell  c.  «.  Harris,  20  Ib.  169;  Powell  v.  Con- 

Conaut,  33  Mich.  396;  Lucas  c/Har-  aut,    33    Mich.    396;    Andrews    v. 

ris,  20  111.  169;  Pollock  v.  Mason,  41  Thayer,  30  Wis.  228. 

Ib.  516 ;  Lynch  «.  Swayne,   83  Ib.  «  Pollock  v.  Mason,  41  111.  516. 

836;  March  v.  Meyers,  85  Ib.  177 ;  *  Duty  v.  Graham,   12  Tex.  437; 

Emory  0.  Keighan,  94  Ib.543;  Wood-  Hubbard  v.  Mo.  Valley  R  R  Co., 

ward  v.  Matthews,  15  Ind.  339;  Tate  25  Kan.  172;  Swenson  v.  Plough  Co., 

v.  Fletcher,  77  Ib.  103;  Duty  v.  Gra-  14  Kan.  388. 

ham,  12  Tex.  437;  Perkins  v.  Sterne,  •  Priest  v.  Wheelock,  58  111.  114. 
23  Ib.  561;  Ross  «.  Mitchell.  28  Ib. 


INDORSEE'S  TITLE  TO  NOTE.  203 

§  158.  APPLICATION  OF  PROCEEDS  OF  SECURITIES  TO 
MORTGAGE  NOTES  UNDER  PRIORITY  RULE. — Where  several 
notes  payable  at  different  times,  made  to  the  same  payee, 
and  representing  parts  of  the  same  debt,  are  secured  by  one 
mortgage,  in  the  absence  of  special  provision,  the  indorsees 
of  such  notes  are  entitled  to  payment  from  the  proceeds  of 
the  mortgaged  property  in  the  order  of  the  maturity  of  such 
notes.1  The  legal  maxim  prior  in  tempore,  prior  injure,  is 
applied  in  such  cases,  as  the  obligation  to  pay  the  note  first 
maturing  may  be  enforced  before  default  is  made  in  later 
payments.8  Such  notes  have  been  regarded  as  so  many  suc- 
cessive mortgages.*  Where  separate  mortgages  are  given  to 
secure  each  note,  all  being  given  for  the  same  indebtedness, 
the  like  rule  as  to  priority  of  the  note  first  maturing  is  ap- 
plied.4 Priority  in  payment  of  the  first  note,  when  made  the 
subject  of  clear  and  distinct  agreement  by  the  parties  is  en- 
forced, although  the  mortgage  security,  when  sold,  realizes 
less  than  the  whole  sum  of  the  indebtedness  secured;  and 
notice  of  such  a  contract  will  bind  indorsees  of  other  notes 
and  third  parties.6  Priority  may  be  given  to  the  last  or  any 

1  Wilson  v.  Hay  ward,  6  Fla.  171;  153;   Huffard  ».    Gootberg,   54  Ib. 

Roberts  n.  Mansfield,  32  Ga.    228;  271;   Brown  v.    Delaney,   22  Minn. 

Sergeant  v.  How,  21  111.  148;  Van-  349;  Norris  v.  Beatty,  6  W.  Va.  483; 

sant  v.  Allen,  23  Ib.  35  ;  Herrington  McClintic  v.  Wise,    25  Gratt.  448 ; 

v.  McCullum,  73  Ib.  476;  Koester  v.  Belding  o.  Mauley,  21  Vt.  550  ;  Wood 

Burke,  81  Ib.  436  ;    Humphreys  v.  v.  Trask,    7  Wis.   566 ;    Church  v. 

Morton,  100  Ib.  598;  Harris  v.  Har-  Smith,  39  Ib.  492  ;   Pierce  v.  Shaw, 

Ian,  14  Ind.  439;   People's  Bank  v.  51  Ib.  316. 

Finney,  63  Ib.  46 );  Doss  v.  Ditmars,  s  Winters  v.  Franklin  Bank,    33 

70  Ib.  451;  Shaw  v.  Newsom,  78  Ib.  Ohio  St.  250;  Wood  v.  Trask,  7  Wis. 

335;  Grapengether  v.    Fejervary,  9  556. 

Iowa.  163;  McDowell  v.   Lloyd,  22  »  Gerber  v.  Sharp,   72  Ind.  558 ; 

Ib.  448;  Walker  v.  Schreiber,  47  Ib.  Murdock  «.  Ford,  17  Ib.  52. 

529;  see  Bailey  v.  Matvin,  53  Ib.  571;  4  Isett  v.  Lucas,  17  la.  503. 

Richardson  v.  McKim,  20  Kan.  346;  5  Shutton  v.  Wiggins,  23  Cal.  16  ; 

United  States  Bank  f>.  Covert,  13  Wilson    v.  Hayward,   6  Fla.    171  ; 

Ohio,  240  ;  Kyle  v.  Thompson,  11  Chew  v.   Buchanan,   30    Md.   367  ; 

Ohio  St.  616;  Winters  v.  Franklin  Foley  v.  Rose,  123  Mass.  557;   Bry- 

Bank,  33  Ib.  250;  Mitchell  v.  Ladew,  ant  v.  Damon,  6  Gray,  564;  Langdon 

36  Mo.  526;  Ellis  v.  Lamme,  42  Ib.  v.  Keith,  9  Vt.  299;    George  v.  Un- 


204  NEGOTIABLE  NOTES  AND  MORTGAGES. 

note.1  Such  agreement,  however,  cannot  be  proven  by 
parol  testimony.*  And  the  right  itself,  being  purely  equi- 
table, in  the  absence  of  contract,  may  be  lost  by  neglect,  as 
against  an  innocent  purchaser  misled  to  his  wrong  by  mis- 
representations, or  the  wilful  silence  of  the  holder  of  the 
notes  claiming  such  priority.* 

§  159.  APPLICATION  OF  PROCEEDS  WHERE,  UPON  DE- 
FAULT, ALL  NOTES  BECOME  DUE,  AND  PRO  RATA. — The  rule 
of  applying  the  proceeds  of  mortgaged  property  primarily 
to  notes  first  maturing,  where  such  notes  have  passed  into 
the  hands  of  different  indorsees  for  value,  is  not  approved 
in  cases  where,  under  provisions  of  the  mortgage,  upon  de- 
fault of  any  one  note  all  the  notes  become  due  and  payable. 
The  happening  of  the  contingency  cancels  and  makes  nuga- 
tory the  stipulations  of  the  contract  as  to  the  times  at  which 
the  notes  become  due,  and  fixes  the  time  of  payment  abso- 
lutely upon  default.4  Where  in  such  mortgage  a  provision 
is  contained  for  an  election  upon  the  part  of  the  payee  or 
holder  of  such  notes  to  declare  the  whole  debt  due,  such 
election  must  be  made,  and  notice  given  to  those  inter- 
ested.4 

The  appropriation  of  the  proceeds  of  the  mortgage  se- 
curity to  the  payment  of  negotiable  notes  or  bonds,  where 
more  than  one  are  given  for  a  single  debt,  and  secured  by 
the  same  mortgage  is,  in  several  cases,  made  by  dividing 
such  proceeds  among  the  holders  of  the  several  obligations 

derwood,  40  Ib.  272;  Moore  v.  Ware,  Isett  ».  Lucas,  17  la.  503;  Hancock's 

38  Me.  498;  Ellis  u.  Lamme,  42  Mo.  App.  34  Pa.  St.  155. 

153;  Bank  v.  Tarlton,  23  Miss.  178;  'Anderson  v.  Baumgarten,  27  Mo. 

Swartz  v.  Leist,   13  Ohio  St.  419 ;  80;  French  v.  Haskins,  9  Gray,  195. 

Wooters  v.  Hollingsworth,  58  Tex.  4  United  States  Bank  v.  Covert,  13 

371.  Ohio,  240;  Pierce  v.  Shaw,  51  Wis. 

1  Ellis  0.  Lamme,    42    Mo.    153 ;  316;  Church  v.  Smith,  39  Ib.  492 ; 

Brownlow  v.   Arnold,    60    Ib.  79 ;  Marine  Bank  v.  Bank,  9  Ib.  57. 

Walker  v.  Dement,  42  111.  272.  *  Marine    Bank   v.    International 

1  Thompson  v.  Ketchum,  8  Johns.  Bank,  9  Wis.  57. 

189;  Creery  t>.  Holly,  14  Wend.  80;.  ... 


INDORSEE'S  TITLE  TO  NOTE.  205 

pro  rata.1  The  rule  is  properly  enforced  where  a  single 
mortgage  is  given  to  secure  separate  debts  to  various  per- 
sons, at  different  times.  In  such  cases,  the  liens  being  con- 
current, no  priority  is  allowed.*  The  rule  of  priority  has 
also  been  held  not  to  apply  where  a  deed  of  trust  was  made 
securing  negotiable  coupon  bonds  of  a  railroad  company, 
and  the  intention  declared  that  there  should  be  no  sale  of 
the  mortgaged  property  except  for  the  whole.8 

§  160.  THE  EQUITY  OF  THE  INDORSEE  OF  ASSIGNED 
NOTE  PREFERRED. — An  equity  arises  in  favor  of  the  in- 
dorsee, where  a  person  holding  two  or  more  promissory 
notes,  parts  of  the  same  debt,  and  secured  by  the  same  mort- 
gage, indorses  one  or  more  thereof  for  value  retaining  the 
others,  that,  in  the  event  of  the  proceeds  of  the  security  fall- 
ing short  of  paying  all  the  notes,  the  indorsed  notes  shall 
be  first  paid  out  of  such  proceeds,  irrespective  of  the  time 
of  the  maturity  of  the  notes.  This  equity  is  especially  fa- 
vored in  certain  states,  and  is  regarded  as  paramount  to  all 
others,  and  of  controlling  force.4  And  a  note  first  indorsed 
has  priority  of  others  indorsed  subsequently.*  But  this 


1  Phillips  v.  Mariner,  5  Biss.  29 ;  Tenn.  Ch.  565;  Waterman  v.  Hunt, 

Strntton    v.    Wiggins,  23    Cal.  16  ;  2  R.  I.  298;  Paris  Bank  v.  Beard,  49 

Russell  v.  Carr,  38  Ga.  459;  Eastman  Tex.  358;  Delespine  v.  Campbell,  52 

c.  Foster,  8  Mete.  19;    Goodloe  v.  Ib.  4;  Belden  v.  Manley,  21  Vt.  551 ; 

Clay,   6   B.  Monr.  236;  Ventrcss  v.  Smith  «.  Day,  23  Ib.  662. 

Creditors,  20  La.  Anu.  359;  English  *  Moffitt  v.  Roche,  76Ind.  75;  Cain 

v.  Carney,  25  Mich.  178;  Johnson  t>.  «.  Hanna,  63  Ib.  409. 

Candage,  31  Me.  28;  Moore  v.  Ware,  *  Humphreys  v.  Morton,   100  111. 

88  Ib.  496 ;  Chew  a.   Buchanan,   30  598. 

Md.  367;  Bank  v.  Tarleton,  23  Miss.  4  Cnllum  v.   Erwin,  4  Ala.  452  ; 

173;  Davidson  «.  Alien,  36  Ib.  419;  Nelson  v.  Dunn,  15  Ib.  501;  Griggs- 

Johnson  v.  Brown,  31   N.  H.  405 ;  by  v.  Hair,  25  Ib.    327 ;    Roberts  v. 

Stevenson  v.  Black.  1  N.  J.  Eq.  338  ;  Mansfield,  32  Ga.  228;  Richardson  v. 

Donley  v.  Hays,   17   S.  &  R.  402;  McKim,  20  Kan.  346;  McClintic  v. 

Perry's  App.  22  Pa.  St.  43;  Hancock's  Wise,  25  Gratt.  448 ;  Noyes  v.  White, 

App.  34  Ib.  155;  Ellis  «.  Roscoe,  4  9  Kan.  640;  Stevenson  v.  Black, 1 N. 

Baxt.  418  ;  Andrews  v.  Hopgood,  1  J.  Eq.  338. 

Lea,  693;   Smith,  v.  Cunningham,  2  6  McClintic  v.  Wise,  25  Gratt.  448. 


206  NEGOTIABLE  NOTES   AND   MORTGAGES. 

equity  of  the  indorsee  of  the  transferred  note  is  not  favored 
in  Massachusetts.  A  mortgagee  and  payee  indorsed  one  of 
two  notes,  secured  by  mortgage,  retaining  the  other,  which 
was  for  a  larger  amount.  No  resulting  trust,  in  the  absence 
of  a  special  agreement,  was  implied  in  favor  of  the  indorsee 
as  against  the  mortgagee  that  the  transferred  note  should 
be  first  paid.  The  very  reason  of  the  negotiation  (say  the 
court)  may  have  been  the  belief  of  the  mortgagee  that  the 
property  covered  by  the  mortgage  security  was  of  value 
sufficient  only  to  secure  the  payment  of  the  note  retained.1 

1  Young  t>.  Miller,  6  Gray  152. 


INDORSEE'S  TITLE  TO  MORTGAGE.  207 


CHAPTER  '  XVI. 

THE  INDORSEE'S  TITLE  TO  THE  MORTGAGE  SECURITY. 

§161.  The  indorsee's  title  to  the  mortgage  security. 

162.  The  rule  in  the  United  States  Supreme  Court — Carpenter  v.  Longan, 

163.  The  New  York  view  of  notes  and  mortgages. 

164.  The  rule  in  Massachusetts,  New  Hampshire  and  Maine. 

165.  The  rule  in  Iowa  and  Wisconsin. 

166.  The  rule  in  Missouri. 

167.  The  rule  in  Kansas.  « 

168.  The  rights  of  the  indorsee  under  the  rule. 

169.  The  indorsee's  title  to  the  mortgage  security,  under  limitations. 

170.  The  rule  in  Illinois — Oldsfl.Cummings. 

171.  The  rule  in  Ohio. 

172.  The  rule  in  Minnesota. 

173.  The  rule  in  other  states. 

174.  The  restricted  rule  not  applied  to  coupon  bonds  or  accommodation 

paper. 

§  161.  THE  INDORSEE'S  TITLE  TO  THE  MORTGAGE 
SECURITY. — The  right  of  the  indorsee  for  value  of  negotia- 
ble promissory  notes  to  the  enforcement  of  the  mortgage  or 
deed  of  trust  security  as  free  from  antecedent  equities  as  the 
note,  approves  itself  to  good  judgment  and  natural  justice. 
The  transfer  of  the  note  by  indorsement  where  required 
and  deliveiy,  before  maturity,  for  value,  in  good  faith  and 
without  notice,  vests  in  the  indorsee  an  unimpeachable  title, 
its  character  as  negotiable  paper  not  being  affected  by  the 
fact  of  its  payment  being  secured  by  a  mortgage  or  deed 
of  trust.  The  indorsement  of  such  note,  and  delivery, 
carries  with  it  the  mortgage  security.  The  union  of  the  two 
in  a  transaction  of  loan,  whereby  the  borrower  obtains  mon- 
ey upon  his  principal  personal  obligation,  supplemented  by 
such  mortgage  given  as  security,  creates  the  relation  of 


208  NEGOTIABLE  NOTES  AND   MORTGAGES. 

principal  and  incident  as  to  the  two  obligations.  Both  being 
given  for  the  same  purpose,  and  together  forming  the  con- 
sideration of  the  loan,  an  indorsee  for  value  of  such  note 
and  mortgage,  in  good  faith,  without  notice,  should  not, 
upon  plain  rules  of  justice;  be  subjected  in  enforcing  such 
obligations  to  different  rules  of  defense,  admitting  equities 
in  the  case  of  the  incident  not  allowed  as  against  the  princi- 
pal obligation.  The  contract  of  the  maker  of  the  note  is  to 
pay  the  sum  named  therein,  upon  a  certain  day,  to  a  person 
named  or  order,  or  bearer.  The  obligation  of  the  mortgagor, 
contained  in  the  mortgage  deed,  is  also  to  pay  the  note 
upon  like  terms.  Both  engagements  are  the  same,  and  the 
Like  enforcement  as  to  each  free  from  antecedent  equities, 
should  be  given  the  bona  fide  indorsee  for  value.  The 
rules  of  estoppel  in  pais  are  invoked  against  the  maker 
and  mortgagor  where  it  is  sought  to  assert  secret  equities 
against  an  innocent  person  who  has  advanced  money  in  good 
faith  on  the  credit  of  the  representations  contained  in  the 
two  instruments,  the  negotiable  note  and  the  mortgage 
security.  The  approved  rule  is,  that  the  title  of  the  indorsee 
for  value,  in  good  faith,  without  notice  of  defenses,  to  the 
mortgage  security  is  as  free  from  antecedent  equities  as  his 
title  to  the  negotiable  note,  when  received  before  maturity, 
under  like  conditions,  and  he  is  entitled  equally  to  enforce 
the  one  as  the  other.  This  rule  is  followed  by  the  Su- 
preme Court  of  the  United  States,  the  federal  courts,  and  in 
several  state  courts.1 


1  Carpenter  v.  Longan,   16  Wall.  cher,  44  Ib.  252 ;  Updegraft  v.  Ed- 

271;  Sawyer  «.  Pickett,  19  Wall.  147;  wards,  45  Ib.  545;  Clasey  v.  Sigg,  51 

Kennicott  v.  Supervisors,  16  Ib.  452;  Ib.  872;  Webb  v.  Hasclton,  4  Neb. 

Batesville  Inst.  v.  Kauffman,  18  Ib.  818;   Moses  ».   Comslock,   Ib.    520; 

151;  New  Orleans  etc.  Co.  t>.  Mont-  Gabbert  v.   Schwartz,  69  Ind.  450; 

gomery,  95  U.  8.16;  National  Bank  Morgan  t>.  Smith,  etc.   Co.,   73  Ib. 

r.  Matthews,  98   Ib.  621;    Swift  v.  179;  Murray  v.  Jones,  50  Ga.  109; 

Smith,  102  Ib.  442;  Bcals  v.  Neddo.  Paige  v.  Chapman,  58  N.  H.  334; 

1  McCrary,  206;  Hayden  «.  Snow,  9  Button  v.  Ives,  5  Mich.  519;   James 

Bisscll,  511;    Preston    t>.    Case,    43  t.  Smith,  22  Ib.  360;  Terry  t>.  TuttJe, 

Iowa,  549;  Farmers'  Bank  c.  Flet-  24  Ib.  206;  Howry  v.  Eppenger,  84 


INDORSEE'S  TITLE  TO  MORTGAGE. 


209 


§  162.  THE  RULE  IN  THE  UNITED  STATES  SUPREME 
COURT — CARPENTER  v.  LONG  AN. — The  rights  of  the  in- 
dorsee of  a  negotiable  promissory  note  secured  by  mortgage 
or  deed  of  trust,  in  respect  to  the  enforcement  of  the  mort- 
gage security,  came  up  for  decision  in  the  United  States 
Supreme  Court  for  the  first  time  in  the  case  of  Carpenter  v. 
Longan,1  and  the  full  court  approved  the  rule  that  the 


Mich.  29,  33;  Kelner  t>.  Krolich,  36 
Mich.  373;  Judge  v.  Vogel.  38  Ib. 
568;  Hurt  v.  Wilson,  38  Cal.  263; 
Malrury  v.  Rinz,  58  Ib.  11 ;  Willis  v. 
Farley,  24  Ib.  290;  Ord  v.  McKee,  5 
Ib.  516;  Duncan  v.  Louisville,  14 
Bush.  385 ;  Lewis  v.  Kirk,  28  Kan. 
497;  Burhans  v.  Hutcheson,  25  Kan. 
625;  McCrum  v.  Corby,  11  Ib.  464; 
Logan  a.  Smith,  62  Mo.  455;  Good- 
fellow  v.  Stillwell,  73  Mo.  17;  Potts 
v.  Blackwell,  4  Jones.  58 ;  Crane  t>. 
March,  4  Pick.  131;  Brown  v.  Tyler, 
8  Gray,  135;  Cazet  v.  Field.  9  Ib. 
329;  Taylor  v.  Page,  6  Allen,  86; 
Lane  v.  Davis,  14  Ib.  225;  Boyd  v. 
Parker,  43  Md.  182  ;  McCracken  v. 
German  Fire  Ins.  Co.,  43  Ib.  471; 
Morris  t>.  Bacon,  123  Mass.  58; 
3Iontague  v.  Boston  R.  R.  Co.,  124 
Ib.  242;  Stevens  v.  Dedham  Inst., 
129  Ib.  547;  Briggs  v.  Kice,  130  Ib. 
50;  Walker  «.  Y,ee.  14  S.  C.  142; 
Croft  v.  Bunster,  9  Wis.  503;  Cornell 
».  Hickens,  11  Ib.  353;  Andrews  v. 
Hart,  17  Ib.  3C6;  Bange  v.  Flint,  25 
Ib.  544 ;  Heath  v.  Silverthorne  etc. 
Co.,  39  Ib.  146.  A  distinction  is 
drawn  between  cases  where  a  mort- 
gage secures  payment  of  negotiable 
instruments  and  where  it  secures 
non-negotiable,  the  Court  applying 
it  only  in  the  former  class.  Kelly  v. 
Whitney,  41  Wis.  110.  The  same 
distinction  is  stated  in  the  leading 
case,  of  Carpenter  v.  Longan,  supra. 
In  McCrum  v.  Corby,  11  Kan.  464, 


and  Walker  v.  Lee,  14  8.  C.  142,  the 
notes,  although  payable  to  order, 
were  pledged  unindorsed.  The 
pledgees  were  held  to  take  an  equi- 
table title  only  thereto,  and  to  be 
subject  to  equities.  Otherwise,  if 
properly  parties  to  the  instrument. 
The  contra  view  was  taken  in  Cor- 
bett  v.  Woodward,  5  Sawy.  403,  and 
In  re  Kansas  City  etc.  Co.  9  N.  B. 
R.  76,  cases  of  assignment  of  prom- 
issory notes  secured  by  mortgage, 
the  latter  arising  under  the  bank- 
rupt law ;  and  in  U.  S.  •c.rSturges,  1 
Paine.  534:  and  Fales  v.  Mayberry, 
2  Gall.  564,  where  the  evidences  of 
debt  were  non-negotiable  bonds. 

1 16  Wall,  271.  The  facts  were: 
Mahala  Longan  and  Jesse  B.  Longan 
executed  their  negotiable  promissory 
note  to  Jacob  B.  Carpenter,  or  order, 
for  the  sum  of  $980,  payable  six 
months  after  date,  at  a  bank  in 
Denver,  with  interest.  At  the  same 
time  Mahala  Longan  executed  to 
Carpenter  a  mortgage  upon  certain 
real  estate,  conditioned  for  the  pay- 
ment of  the  note  at  its  maturity.  Two 
months  before  the  maturity  of  the 
note  it  was  indorsed  for  a  valuable 
consideration  to  B.  Platte  Carpenter, 
the  plaintiff.  The  note  not  being 
paid  at  maturity,  suit  was  brought 
to  foreclose  the  mortgage.  The  de- 
fendant set  up  that  she  had  delivered 
wheat  and  flour  to  the  original 
holder  of  the  note  at  the  time  of  the 


210  NEGOTIABLE  NOTES  AND   MORTGAGES. 

indorsee  takes  the  mortgage  as  he  takes  the  note,  free  from 
antecedent  equities.  The  opinion  of  the  court  was  delivered 
by  Mr.  Justice  Swayne.  "  The  question  is,"  say  the  Court, 
'*  whether  an  assignee,  under  the  circumstances  of  the  case, 
takes  the  mortgage  as  he  takes  the  note,  free  from  the 
objections  to  which  it  was  liable  in  the  hands  of  the  mort- 
gagee. We  hold  the  affirmative.  The  contract,  as  regards 
the  note,  was  that  the  maker  should  pay  it  at  maturity  to 
any  bona  fide  indorsee,  without  reference  to  any  defenses  to 
which  it  might  have  been  liable  in  the  hands  of  the  payee. 
The  mortgage  was  conditioned  to  secure  the  fulfilment  of 
that  contract.  To  let  in  such  a  defense  against  su<-h  a 
holder  would  be  a  clear  departure  from  the  agreement  of  the 
mortgagor  and  mortgagee,  to  which  the  assignee  subsequent- 
ly, in  good  faith,  became  a  party.  If  the  mortgagor  desired 
to  reserve  such  an  advantage,  he  should  have  given  a  non- 
negotiable  instrument.  'If  one  of  two  innocent  persons  must 
suffer  by  a  deceit,  it  is  more  consonant  to  reason  that  he 
who  puts  trust  and  confidence  in  the  deceiver  should  be 
a  loser  rather  than  a  stranger.'  (Hern  v.  Nichols,  1  Salk. 
289)."  The  court  further  say  :  "All  the  authorities  agree 
that  the  debt  is  the  principal  thing,  and  the  mortgage  an 
accessory.  Equity  puts  the  principal  and  accessory  upon  a 
footing  of  equality,  and  gives  to  the  assignee  of  the  evidence 
of  the  debt  the  same  rights  in  regard  to  both.  There  is  no 
analogy  between  this  case  and  one  where  a  chose  in  action, 
standing  alone,  is  sought  to  be  enforced.  The  fallacy  which 
lies  in  overlooking  this  distinction  has  misled  many  able 
minds,  and  is  the  source  of  all  the  confusion  that  exists. 
The  mortgage  can  have  no  separate  existence.  When  the 
note  is  paid  the  mortgage  expires.  It  can  not  survive  for  a 


execution  of  the  mortgage,  the  pro-  was  sold,  and  that  both  goods  and 

ceeds  to  be  applied  in  payment  of  money  were  lost  by  reason  of  the 

the  note,  but  that  he  had  converted  insolvency  of  such  mortgagee.    No 

the  same  to  his  own  use ;  and  it  was  knowledge  or  notice  of  this  transac- 

shown  that  the  flour  and  wheat  were  tion  was  chargeable  as  against  the 

stored  in  a  warehouse ;  that  some  indorsee  of  the  note. 


INDORSEE'S  TITLE  TO  MORTGAGE.  211 

moment  the  debt  which  the  note  represents.  This  depend- 
ent and  incidental  relation  is  the  controlling  consideration, 
and  takes  the  case  out  of  the  rule  applied  to  choses  in  action, 
where  no  such  relation  of  dependence  exists.  Accessorium 
non  ducit,  sequitur  principale" 

The  rule  announced  has  been  applied  in  later  cases  by 
the  United  States  Supreme  Court,  where  the  indorsement  of 
the  note  and  mortgage  was  for  the  purpose  of  collateral 
security  for  other  obligations  of  the  pledgor,1  and  in  cases  of 
deeds  of  trust.* 

§  163.  THE  NEW  YORK  VIEW  OF  NOTES  AND  MORT- 
GAGES.—  In  an  early  New  York  case  involving  the  use 
of  indorsed  negotiable  notes,  secured  by  mortgage,  as 
collateral,  Chancellor  Kent,  speaking  of  the  relation  be- 
tween the  note  and  mortgage,  said,  "  Wherever  the  note 
goes,  the  land  will  go  along  with  it.  The  estate  in  the 
land  is  the  same  thing  as  the  money  due  on  the  note.  By 
the  transfer  of  note,  the  mortgage  went  with  it,  and  the 
same  interest  passed  in  the  one  as  in  the  other/'*  But 
promissory  notes  are  rarely  used  in  New  York  in  connection 
with  mortgage  security,  non-negotiable  bonds  being  used 
in  place  thereof.  In  this  connection,  in  the  Trustees  of 
Union  College  v.  Wheeler,4  (Dwight,  C.  J.)  said,  "  Refer- 
ence is  made  to  a  class  of  cases  holding  in  substance  that 
when  a  mortgage  is  given  to  secure  a  negotiable  note,  which 
is  itself  transferred  before  maturity,  it  is  taken  by  the 
assignee  free  from  all  equities;  and  it  is  argued  that  these 
authorities  tend  to  show  that  the  mortgage  partakes  of  the 
nature  of  the  debt  in  such  a  sense  that  only  the  direct 
equities  between  the  debtor  and  the  creditor  can  be  set  up 
as  against  the  assignee.  These  cases  have  not  become  the 

1  Sawyer  v.  Prickett,  19  Wall.  147 ;          *  New  Orleans  etc.  Co.  v.  Montgom- 

Kennicott  v.  Supervisors,  16  Wall.  cry,  95  U.  S.  16. 
452  ;  Natipnal  Bank  v.  Matthews,  98          8  Johnson  v.  Hart,  3  Johns.  Cas. 

Ib.  621 ;  '  Swift  9.  Smith,   102  Ib.  322,  330. 
442.  *  61  N.  Y.  88. 


212  NEGOTIABLE   NOTES  AND  MORTGAGES. 

established  law  in  this  state.  If  sound  they  must  be  made 
to  rest  on  rules  of  law  attending  the  transfer  of  negotiable 
paper,  and  cannot  be  held  by  indirection  to  overthrow  a 
rule  concerning  the  ordinary  bond  and  mortgage  which  has 
become  fixed  in  our  jurisprudence." 

§164.  THE  BULB  IN  MASSACHUSETTS,  NEW  HAMP- 
SHIRE AND  MAINE. — In  Massachusetts,  the  rule  is  recog- 
nised that  the  indorsee  of  a  negotiable  promissory  note,  se- 
cured by  mortgage  or  deed  of  trust,  takes  the  security  as 
he  takes  the  note.1  In  Taylor  v.  Page,8  where  the  considera- 
tion of  the  note  and  mortgage  was  illegal,  an  indorsee  of  the 
note,  for  value,  before  maturity,  without  notice,  was 
allowed  to  recover  on  the  mortgage  security,  no  principle 
or  authority  making  the  mortgage  less  valid  than  the  note 
in  the  hands  of  an  innocent  indorsee  for  value.  The  rule 
has  been  enforced  in  later  cases,  the  transfers  being  as  col- 
lateral security.8  In  a  recent  case  in  New  Hampshire,4 
upon  a  writ  of  entry  upon  a  mortgage,  by  the  indorsee  of 
the  note  and  assignee  of  the  mortgage,  who  received  the 
same  for  value,  before  due,  as  collateral  security,  in  good 
faith,  and  without  notice  of  defenses,  the  mortgagor  was 
not  permitted  to  set  up  any  defense  of  want  of  considera- 
tion, or  that  the  note  and  mortgage  were  obtained  from  him 
by  fraudulent  representations.  The  mortgage  was  enforced 
equally  as  freed  from  equities  as  the  note,  as  "defenses  (say  the 
court)  which  cannot  be  made  against  the  note  because  it  has 
travelled  away  from  them,  cannot  be  made  against  the  mort- 
gage which  has  kept  company  with  the  note."  In  Maine,  a 
mortgagee  is  pro  tan  to  apurchaser,and  abona  fide  mortgagee  is 

1  Crane  v.  March,  4  Pick,  181.  v.  Page,  6  Allen  36 ;  Lane  v.  Davis, 

*  6  Allen,  86.  14  Ib.  235.  Sub-pledgees  were  pro- 

1  Morris  «.  Bacon,  123  Mass.  68  tected  in  Draper  v.  Saxton,  118  Mass. 

Strong  v.  Jackson.  123  Ib.  60;  Blunt  427;  Briggs  v.  Rice,  130  Ib.  50. 

v.  Norris,  123  Mass.  55;  Montague  4  Paige  v.  Chapman,  58  N.  H.  333; 

v.  Boston  R.  R.  Co.,  124  Mass.  242;  Tucker  v.  Bank,  Ib.  83;  criticising 

Stevens  v.  Dedham  Inst.  129  Ib,  547;  Jenness  v.  Bean,  10    N.    H.    266; 

Brown  v.  Tyler,  8  Gray,  185 ;  Taylor  Williams  v.  Little,  11  Ib.  66. 


INDORSEE'S  TITLE  TO  MORTGAGE.  213 

equally  entitled  to  protection  as  a  bona  fide  grantee ;  the 
assignee  of  a  mortgage  is  on  the  same  footing  with  the  bona 
fide  mortgagee.  He  relies  upon  the  record,  and  is  pro- 
tected against  unknown  and  latent  equities.1 

§  165.  THE  RULE  IN  IOWA  AND  WISCONSIN. — The 
question  was  first  decided  in  Iowa  in  the  case  of  Preston  v. 
Case.*  A  negotiable  promissory  note,  payable  to  the  order 
of  the  cashier  of  a  bank,  and  secured  by  a  mortgage,  was 
executed  and  delivered  as  collateral  security  for  proposed 
future  advances  of  money  as  they  might  be  required.  In 
fact,  no  advances  were  ever  made.  The  cashier  of  the  bank, 
some  time  after  the  delivery  thereof,  indorsed  the  note  in 
blank,  and  forwarded  it,  with  the  mortgage,  and  other  like 
securities  to  the  Chicago  correspondent  of  the  bank  as  col- 
lateral security  for  a  present  loan.  The  pledgee,  as  a  holder 
for  value  in  good  faith  of  the  note,  was  allowed  to  enforce 
the  mortgage  security  as  free  of  equities  arising  from  want 
of  consideration  as  if  the  action  had  been  on  the  note  itself, 
the  right  of  enforcement  of  the  mortgage  security  following 
the  transfer  of  the  negotiable  collateral  note.  The  rule  of 
Carpenter  v.  Longan,  supra,  has  been  followed  in  later 
cases.3 

In  Wisconsin,  the  rule  was  extended  to  include  an  in- 
dorsee for  value  of  negotiable  paper,  secured  by  mortgage,  in 

1  Pierce  v.  Faunce,  47  Me.  507.  if  the  debt  bad  been  represented  by 

1  42  Iowa,  549.  In  Judge  v.  Vogel,  a  negotiable  promissory  note  which 

38  Mich.  568,  a  mortgage  was  given  had  passed  into  the  hands  of  an  in- 

for    a    certain   sum,   but  really  to  nocent  indorsee  for  value,    before 

secure  future  advances    of  which,  maturity,  without  notice,  he  would 

however,  none  were  made.    An  in-  have  taken  the  mortgage  as  the  note, 

nocent  person,  advancing  money  in  free  of  pre-existing  equities.     Ladue 

good  faith  upon  the  belief  and  credit  v.  Detroit  R.  R.  Co.,  15  Mich.  380. 
of  the  statements  as  to  the  debt  con-         *  Farmers'  Bank  v.  Fletcher,  44 

tained  in    the    mortgage,  took  no  Iowa,  252;   Updegraft  ».  Edwards, 

greater  title  to  the  security  than  the  45  Ib.  545;  Clasey  v.  Sigg,  51  Ib. 

mortgagee,  and  was  not  allowed  the  372;  Vandercook  v.  Baker,   48  Ib. 

aid  of   equity  to  enforce  the  same.  199;  Martindale  v.  Burch,  57  Ib.  291. 
The  court  recognize,  however,  that 


214  NEGOTIABLE  NOTES   AND   MORTGAGES. 

a  case  where  a  corporation  holding  the  promissory  note  and 
mortgage  of  A,  executed  to  C,  its  negotiable  bond  for  a  sum 
equal  to  the  note,  attaching  thereto  the  note  and  mortgage, 
and  reciting  in  the  bond  that  the  note  and  mortgage 
were  transferred  to  C.  as  collateral  security,  and  that  both 
should  be  transferable  in  connection  with  the  bond,  and  not 
otherwise.  This  was  regarded  as  a  sufficient  indorsement 
within  the  law  merchant  to  pass  both  the  note  and  the 
mortgage  security  to  the  indorsee  free  from  equities.1 


§  166.  THE  RULE  IN  MISSOURI. — Missouri  adopted  the 
views  stated  as  to  the  rights  of  the  indorsee  of  the  note  to  the 
enforcement  of  the  mortgage  security  in  Logan  v.  Smith,* 
holding  (where  a  negotiable  promissory  note  secured  by 
mortgage  had  been  pledged  as  collateral  security  for  a  pres- 
ent loan  so  as  to  make  the  pledgee  a  party  to  the  instrument) 
that  an  indorsee  for  value  of  a  negotiable  note,  who  receives 
it  discharged  of  equities  to  which  it  was  subject  in  the  hands 
of  the  payee,  acquires  the  same  right  in  a  mortgage  given  to 
secure  it,  which  the  payee  would  have  had,  if  no  equities 
had  ever  existed  against  the  note.  The  rule  has  been 
enforced  in  a  later  case,  in  which  an  indorsee  for  value  of  a 
negotiable  promissory  note,  secured  by  deed  of  trust,  before 
maturity,  and  without  knowledge  of  payments  made  upon 
it,  was  allowed  to  enforce  the  security  to  the  full  amount  of 
the  note.3  A  bank,  under  the  form  of  discounting  the  note  of 
a  third  party,  took  up  certain  notes  secured  by  a  deed  of  trust, 
in  order  to  prevent  a  foreclosure,  retaining  the  notes  and 
mortgage  as  collateral  security.  As  against  the  maker,  the 
transaction  amounted  to  a  purchase,  and  not  a  payment  there- 
of, and  the  bank,  default  having  taken  place  in  the  securities, 
was  allowed  to  enforce  the  mortgage  security.4 


1  Crosby  v.  Roub,  16  Wis.  625.  «  Swope  t>.  Leffingwell,    72    Mo. 

1  62  Mo.  455.  348;  reversing  s.  c.,  4  Mo.  App.  525 ; 

1  Goodfellow  v.  Smith,  73  Mo.  17.        affirmed  in  105  U.  S.  17. 


INDORSEE'S  TITLE  TO  MORTGAGE.  215 

§  167.  THE  RULE  IN  KANSAS. — The  Supreme  Court  of 
Kansas  (Valentine,  J.),  recently,  in  the  case  of  Lewis  v. 
Kirk1  announced  the  rule  upon  this  subject  prevailing  in 
that  state,  as  follows :  "  Where  a  real  estate  mortgage  is 
executed  to  secure  the  payment  of  a  negotiable  promissory 
note,  such  mortgage  will  so  far  partake  of  the  negotiable 
character  of  a  note,  that  whenever  the  note  is  transferred 
by  indorsement  before  due  so  as  to  free  it  from  all  equities 
existing  in  favor  of  the  maker  of  the  note,  or  prior  in- 
dorsers,  the  mortgage  will  also  be  freed  from  such  equities. 
Until  the  mortgage  is  recorded  such  transfers  will  not  prevent 
a  third  person,  who  has  no  notice  of  the  mortgage  or  trans- 
fer from  purchasing  the  mortgaged  property,  and  thereby 
obtaining  a  full  and  absolute  title  to  the  property  free  and 
and  clear  from  the  mortgage  lien.  But  when  the  mortgage 
is  recorded,  its  negotiable  character  is  then  extended  even 
to  bona  fide  purchasers  of  the  property,  and  it  retains  such 
character,  contemporaneously  with  the  existence  of  the 
note  to  which  it  is  an  incident,  until  the  note  is  satisfied, 
or  until  the  mortgage  is  released  of  record  by  the  mortgagee 
or  his  attorney,  assignee,  or  personal  representative  ;  and 
that,  when  the  mortgage  is  so  released,  it  then  loses  its 
negotiable  character  to  the  extent  that  any  third  person 
who  may  then  purchase  the  property  in  good  faith  will  ob- 
tain the  full,  complete,  and  absolute  title  thereto,  freed  from 
all  equities,  liens,  interests,  trusts,  or  incumbrances  existing 
in  favor  of  any  holder  of  the  note  and  mortgage,  whether 
the  note  is  satisfied  or  not."  In  an  earlier  case,  the  record 
of  an  assignment  of  a  mortgage  by  a  bona  fide  indorsee  for 
value  of  negotiable  paper,  transferred  before  maturity,  and 
secured  by  a  mortgage,  was  not  required,  nor  notice  to  the 
mortgagor  of  such  assignment,  in  order  to  protect  the  in- 
dorsee against  payments  made,  after  the  assignment  and 
without  his  knowledge  or  Consent,  by  the  mortgagor  to  the 
mortgagee.8 

1  Lewis  v.  Kirk,  28  Kan.  497.  *  Burhans  v.  Hutclaeson,  25  Kan. 

625. 


216  NEGOTIABLE  NOTES  AND  MORTGAGES. 

§  168.  RIGHTS  OF  THE  INDORSEE  FOR  VALUE  UNDER 
THE  RULE. — The  title  of  the  indorsee  for  value,  in  good 
faith,  before  maturity,  of  a  negotiable  promissory  note, 
secured  by  mortgage,  to  the  enforcement  of  the  security,  is 
not  defeated  by  the  fraud  of  the  mortgagee,  in  procuring  a 
release  of  the  mortgage.1  Nor,  where  several  negotiable 
notes  are  secured  thereby,  some  of  which  had  been  trans- 
ferred, will  the  release  of  record  of  the  mortgage  by  the 
mortgagee,  supposing  the  notes  had  all  been  paid,  dis- 
charge the  mortgage  as  to  such  of  said  notes  as  were  out- 
standing and  unpaid  in  the  hands  of  bona  fide  indorsees  for 
value,  before  maturity.*  The  title  of  the  indorsee  of  the 
note  and  his  right  to  the  enforcement  of  the  mortgage  se- 
curity, equally  as  free  of  equities  as  the  note,  was  supported 
where  a  wife  claimed  that  she  was  forced  to  execute  the 
note  and  mortgage  under  threats  of  personal  violence. 
Such  a  defense  presents  no  superior  equities  to  those  of  the 
bona  fide  indorsee  of  the  paper  secured  thereby.*  Nor  can 
a  wife  question  the  validity  of  an  assignment  of  a  mort- 
gage, given  to  secure  the  payment  of  a  negotiable  promis- 
soiy  note,  held  by  an  indorsee  for  value,  upon  the  ground 
that  the  premises  covered  by  the  mortgage  were  her 
homestead.4  An  assignee  of  a  mortgage  executed  to  one 
with  notice  that  it  was  without  consideration,  and  that  no 
note  was  ever  delivered,  is  subject  to  equities  between  the 
original  parties.5  Nor  does  the  rule  of  Carpenter  v.  Longan 
affect  statutory  provisions  relative  to  priority  of  different 
mortgages  ;  the  indorsee  for  value  of  a  note  and  mortgage 
is  subject  thereto  as  well  as  the  original  parties.' 

§  169.  THE  INDORSEE'S  TITLE  TO  THE  MORTGAGE  SE- 
CURITY, UNDER  LIMITATIONS. — The  right  of  the  indorsee  of 

1  Vandercock  v.  Baker,  48  Iowa,         *  Malrury  v.  Rinz,  58  Cal.  11. 
199.  5  Burbank  v.  Warwick,  52  Iowa, 

*  Martindale  v.  Burch,   57  Iowa,      493. 

291.  •  Yerger  v.  Barz,  56  Iowa,  77. 

•  Beals  v.  Neddo,  1  McCrary,  200. 


INDORSEE'S  TITLE  TO  MORTGAGE.  217 

a  negotiable  promissory  note  to  the  enforcement  of  a  mort- 
gage of  land  given  as  security  for  its  payment,  is  subject  in 
certain  states  to  limitations,  which  affect  materially  the 
availability  of  such  securities,  either  for  sale  or  use  as  col- 
laterals. The  liability  of  the  maker  or  indorser  upon  his 
own  personal  obligation,  when  in  the  hands  of  an  indorsee 
for  value,  before  maturity,  and  without  notice,  is  not 
questioned.  The  mortgage,  however,  being  treated  as  in 
the  nature  of  an  independent  contract,  enforceable  only  in 
equity,  the  indorsee  of  the  note,  receiving  the  mortgage  by 
assignment,  or  as  an  incident  following  the  note  without 
more,  is  subject  generally  to  antecedent  equities  arising  out 
of  the  original  transaction,  and  as  between  the  original 
parties,  and  in  some  cases  to  the  secret  equities  of  third 
persons  and  cestuis  que  trust.  Although  the  condition  of 
the  mortgage  is  to  pay  the  note,  the  indorsee  for  value 
seeking  to  enforce  the  same  in  a  court  of  equity,  is  subject 
to  all  equities  and  defenses  available  to  the  mortgagor  if 
sued  by  the  mortgagee.  If  judgment  were  taken  on  the 
principal  note  by  the  indorsee,  such  judgment  would  be  a 
lien  on  the  mortgagor's  estate  (including  that  covered  by 
the  mortgage)  for  the  whole  amount  thereof,  and  a  court 
of  equity  would  not  interfere  to  restrain  the  enforcement  of 
such  judgment  lien  for  the  full  face  of  the  note.  The  in- 
dorsee may  pursue  his  remedies,  both  at  law  and  in  equity 
at  the  same  time,  with  the  anomalous  result  that  while  his 
recovery  at  law  will  be  as  stated  for  the  amount  of  the  note, 
the  decree  in  equity  upon  the  mortgage  security  may  be 
fora  different  amount,  as  his  recovery  is  subject  to  defenses 
not  permitted  in  the  action  at  law.  This  inconsistency 
cannot  occur  under  the  rule  of  Carpenter  v.  Longan. 

§170.  THE  RULE  IN  ILLINOIS — OLDSV.  CUMMINGS. — 
The  rule  was  established  in  Illinois  in  the  leading  case  of 
Oldsw.  Cummings1  in  which  an  indorsee  for  value  of  nego- 

1  31  111.  188. 


218  NEGOTIABLE  NOTES  AND   MORTGAGES. 

liable  promissory  notes,  receiving  the  same  before  maturit}', 
without  notice  of  defenses,  sought  to  enforce  the  mortgage 
security  in  equity  by  foreclosure  and  sale.  Usury  was  sefc 
up  as  a  defense,  and  also  that  the  indorsement  of  the  note 
and  mortgage  was  only  colorable,  and  for  the  purpose  of 
cutting  off  defenses.  In  delivering  the  opinion  of  the 
court,  Chief  Justice  Caton  presented  the  argument  in  favor 
of  the  restricted  rule.  "  Mortgages,"  he  said,  "  are  not  com- 
mercial paper.  It  is  not  convenient  to  pass  them,  from 
hand  to  hand  performing  the  real  office  of  money  in  com- 
mercial transactions,  as  notes,  bills  and  the  like.  *  *  * 
The  note  itself,  though  secured  by  a  mortgage,  is  still  com- 
mercial paper,  and  when  the  remedy  is  sought  upon  that, 
all  the  rights  incident  to  commercial  paper  will  be  enforced 
in  the  courts  of  law.  But  when  this  remedy  is  sought 
through  the  medium  of  a  mortgage  ;  when  that  is  the  foun- 
dation of  the  suit,  and  the  note  is  merely  used  as  an  inci- 
dent, to  ascertain  the  amount  due  on  the  mortgage,  then  the 
courts  of  equity,  to  which  resort  is  had,  m  ust  pause,  and 
look  deeper  into  the  transaction,  and  see  if  there  be  any 
equitable  reason  why  it  should  not  be  enforced.  He  who 
holds  a  note,  and  also  a  mortgage,  holds  in  facts  two  instru- 
ments for  the  security  of  the  debt ;  first,  the  note,  with  its 
personal  security,  which  is  commercial  paper,  and  as  such, 
may  be  enforced  in  courts  of  law,  with  all  the  rights  inci- 
dent to  such  paper,  and  the  other,  the  mortgage,  with  se- 
curity on  land,  which  may  be  enforced  in  the  courts  of 
equity,  and  is  subject  to  the  equities  existing  between  the 
parties.  *  *  *  The  assignee  is  required  to  inquire  of 
the  mortgagor  if  there  is  any  reason  why  the  mortgage 
should  not  be  paid,  but  lie  should  not  be  required  to  inquire 
of  the  whole  world,  to  see  if  some  one  has  not  a  latent  equi- 
ty which  might  be  interfered  with  by  his  purchase  of  the 
mortgage,  as  for  instance,  a  cestui  que  trust."  The  rule 
has  been  followed  in  later  cases,1  but  is  not  applied  as  against 

1  Walker  e.  Dement.  47  111.  273;      man  v.  Frisbie,  63  Ib.  482;  White  ». 
Edgertont).  Young,  43111.  464;  Klee-      Sutherland,  64  Ib.  181;  Haskell  t>. 


INDORSEE'S  TITLE  TO  MORTGAGE.  219 

an  indorsee  for  value  of  a  negotiable  promissory  note,  se- 
cured by  mortgage,  where  the  claim  of  set-off  is  in  respect 
of  a  debt  arising  out  of  a  collateral  matter.1  And  where 
notes  and  mortgages  are  executed,  and  delivery  is  made 
thereof  to  the  payee  of  the  notes  so  that  he  may  sell  them 
upon  the  market  to  raise  money  for  certain  purposes,  the 
mortgagee  is  estopped  as  against  an  indorsee  for  value, 
without  notice,  seeking  to  foreclose  the  mortgage  security, 
to  question  its  validity,  although  the  agent  misappropriated 
the  money  received.4  The  rule  that  a  holder  for  value  of 
negotiable  notes  and  mortgage  is  not  subject  to  secret  equi- 
ties of  cestuis  que  trust  of  which  he  has  no  notice,  is  ap- 
plied where  the  real  owner  of  land  has  enabled  his  agent 
to  sell  and  convey  his  land  to  a  third  person,  who  gave  his 
notes,  payable  to  the  agent,  and  secured  by  a  mortgage, 
and  the  notes  passed  by  indorsement  to  an  indorsee  for 
value  without  notice,  although  the  sale  of  the  land  was  a 
fraud  on  the  real  owner.8 

§  171.  THE  RULE  IN  OHIO. — In  Ohio,  the  indorsee  of  a 
negotiable  promissory  note,  secured  by  mortgage,  upon  en- 
forcing in  equity  the  mortgage  security  is  subject  not  only 
to  the  equities  of  the  original  parties,  but  also  to  the  equi- 
table rights  and  title  of  third  persons.  In  the  leading  case 
in  that  state,4  the  court  declined  to  affirm,  either  that  a 
mortgage,  when  made  to  secure  a  negotiable  note,  becomes, 
contrary  to  its  general  nature  and  qualities,  a  negotiable 
instrument ;  or,  that  the  transfer  of  such  a  note,  without 

Brown,    65    Ib.    29;    Thompson  v.  bell,  98  Ib.  573 ;  Mclntire  v.  Yates, 

Shoemaker,  68  Ib    259  ;  Belohrad-  104  Ib.  491 ;  Grassley  v.  Reinbach,  4 

sky  v.  Kuhn,  69  Ib.  547 ;  Petillon  v.  Bradw.  344 ;  Foster  v.  Strong  5  Ib. 

Noble.  73  Ib.  567 ;  Buchanan  v.  In-  227. 

ternational  Bank,  78  Ib.  500;  Inter-  '  Colehour  v.  State  Savings  Inst., 

national  Bank  v.  Bowen,  80  111.  541;  90  111.  152. 

Darst  v.  Gale,  83  Ib.  137 ;  Melendy  »  Mclntire  «  Yates.  104  111.  491 ; 

v.  Keen,  89  Ib.  395  ;  Bryant  v.  Vix,  Melendy  v.  Keen,  89  111.  395,  403. 

83  Ib.  14;  Colehour  v.  State  Savings  *  Silverman  v.  Bullock,  98  111.  11. 

Inst.,  90  Ib.  152  ;  Hosmer  v.  Camp-  «  Bailey  v.  Smith,  14  Ohio  St.  396. 


220  NEGOTIABLE  NOTES   AND  MORTGAGES. 

the  aid  of  any  statute,  or  of  any  judicial  decisions,  except 
those  of  very  recent  date,  has  an  effect  upon  the  note  itself, 
and  draws  after  it,  and  within,  one  of  the  most  important 
incidents  of  negotiability,  a  collateral  contract  having  rela- 
tion to  the  same  debt.  Mortgages  being  (the  court  say) 
"  mere  choses  in  action ;  and  whether  standing  alone,  or 
taken  to  secure  negotiable  or  non-negotiable  paper,  they  are 
only  available  for  what  is  honestly  due  from  the  mortgagor 
to  the  mortgagee.  If  they  are  assigned,  either  expressly  or 
by  implication,  the  assignee  takes  only  the  interest  which 
his  assignor  had  in  the  instrument — acquires  but  an  equity, 
and,  upon  the  long-established  doctrine  of  courts  of  equity, 
is  bound  to  submit  to  the  assertion  of  the  prior  equitable 
rights  of  third  persons."  The  indorsee,  suing  upon  the 
note,  may  recover  judgment  for  the  full  amount  thereof.1 
And  where  a  note,  payable  on  demand,  was  secured  by 
mortgage,  the  mortgage  became  due  under  the  same  condi- 
tions as  the  note.* 

§  172.  THE  RULE  IN  MINNESOTA. — In  Minnesota,  the 
rule  is  established  that  by  the  transfer  of  a  negotiable  prom- 
issory note,  secured  by  mortgage,  the  indorsee  of  the  note 
is  entitled  to  enforce  the  mortgage  security  only  as  subject 
to  equities  existing  between  the  original  parties.8  A  mort- 
gage being  a  chose  in  action,  as  between  the  mortgagor  and 
the  mortgagee,  or  any  subsequent  assignee  from  the  latter, 
is  taken  subject  to  the  state  of  accounts  between  the  mort- 
gagor and  mortgagee  at  the  time  of  the  assignment,  and  to 
all  payments  made  by  the  mortgagor  to  the  mortgagee  at 
any  time  before  actual  notice  thereof.4  And  where  an  as- 
signment of  a  note  and  mortgage  is  made  by  a  separate  in- 
strument, the  person  receiving  the  same  being  chargeable 
\vith  notice  that  they  are  not  in  possession  of  the  assignor, 

1  Heller  v.  Meis,  2  Sup.  Ct.  R  289.  176;  Hostetter  v.  Alexander,  22  Ib. 

'Union  Central  Life  Ins.  Co.  v.  559;  Blumentbal  v.  Jassey,  30  Minn. 

Curtis,  33  Ohio  St.  348.  (14  Rep.  52.) 

1  Johnson  ».  Carpenter,  7  Minn.  4  Johnson  ».  Carpenter,  supra. 


INDORSEE'S  TITLE  TO  MORTGAGE.  221 

but  making  no  inquiry,  the  presumption  in  favor  of  pur- 
chasers in  good  faith,  within  the  meaning  of  the  registry 
laws,  is  not  invoked  for  his  protection,  and  his  assignment, 
although  recorded,  is  subject  to  an  unrecorded  assignment 
of  the  same  note  and  mortgage,  accompanied  by  delivery 
and  possession.1 

§  173.  THE  RULE  IN  OTHER  STATES. — Under  the  Louis- 
iana code  and  the  decisions  of  the  courts  of  that  state,  the 
negotiability  of  the  note  secured  by  mortgage,  so  far  as  the 
personal  liability  of  the  parties  thereto  are  concerned,  to  the 
full  amount  thereof,  is  conceded  and  enforced.2  A  different 
rule  is  applied  to  the  mortgage  security.  A  mortgage  is  not 
negotiable  in  the  sense  of  the  commercial  law,3  whether 
transferred  by  separate  assignment,  or  following  as  accessory 
to  the  transfer  of  the  negotiable  note  the  payment  of  which 
is  secured  by  it.4  The  transferree  of  a  mortgage  receives 
no  greater  right  or  title  than  the  transferror  has  at  the  time 
the  transfer  is  made.6  The  mortgage  security  vests  in  the 
indorsee  of  the  note  subject  to  all  equities  and  defenses 
existing  between  the  original  mortgagor  and  mortgagee.8  If 

~  o  o     o  o     o 

the  mortgage  has  been  extinguished,  or  has  for  any  cause 
ceased  to  be  an  existing  obligation,  and  can  no  longer  be 
enforced  by  the  mortgagee,  the  indorsee  of  the  note  cannot 
enforce  it.1 

The  indorsee  of  negotiable  notes,  secured  by  mortgage, 
although  paying  less  therefor  than  their  face,  is  entitled  in 
South  Carolina  to  the  full  benefits  of  his  purchase  and  may 
recover  the  face  value  thereof.  But,  in  resorting  to  the  col- 
lection of  his  debt  from  the  mortgage  security,  if  the  assigu- 

1  O'Mulcahy  t>.Holley,  28  Minn. 31.  »  Sprig  v.  Bossier,  5  N.  S.  56 ;  Gua- 

8  Schmidt  v.  Frey.  5  La.  Ann.  435;  ton  v.  Matthews,  5  La.  Ann.  495; 

Garner  v.  Gay,  26  Ib.  376 ;  Morris  ®.  Bouligny  v.  Fortier,  17  Ib.  121;  Mor- 

White,  28  Ib.  855  ;  Butler  fl.Slocomb,  ris  v.  White,  28  Ib.  855 

33  Ib.  170.  «  Butler  v.  Slocomb,  33  La.   Ann. 

8  Boligny  v.  Foster,  17  La.  Ann.  170  ;  Bouligny  v.  Fortier,  supra. 

121.  7  Bowman  v.  McElroy,  14  La.  Ann. 

4  Schmidt  v.  Frey,  supra.  587;  Doll  v.  Rosetti,  20  Ib.  264. 


222  NEGOTIABLE  NOTES  AND   MORTGAGES. 

ment  is  made  without  the  consent  of  the  mortgagor,  such 
indorsee  stands  only  in  the  place  of  the  original  creditor,  and 
is  subject  in  all  respects  to  the  like  equities  and  settlement 
of  accounts  as  the  mortgagee  would  be,  the  mortgagor  not 
being  bound  by  the  amount  appearing  on  the  face  of  the 
mortgage.1 

In  Vermont,  a  suit  to  foreclose  a  mortgage  was  brought 
by  an  indorsee  for  value,  before  maturity,  of  the  negotiable 
notes  secured  thereb}',  without  notice  of  equities.  A  de- 
fense was  introduced  that  a  part  of  the  consideration  of  the 
notes  was  illegal.  The  indorsee,  by  his  purchase  of  the 
notes  and  mortgage,  having  acquired  all  the  rights,  legal  and 
equitable,  of  the  mortgagee  was  allowed  to  maintain  an 
action  to  foreclose  the  security  for  so  much  of  the  debt  as 
was  legally  and  fairly  contracted.*  The  rights  of  pledgees 
of  notes  properly  indorsed  and  secured  by  mortgages  have 
been  sustained.1 

.  §  174.  THE  RESTRICTED  RULE  NOT  APPLIED  TO  COUPON 
BONDS  OR  ACCOMMODATION  PAPER. — Important  exceptions 
are  made  in  Illinois  to  the  rule  declared  in  Olds  v.  Cum- 
mings.4  Such  rule  was  not  applied  in  a  case  involving  the 
rights  of  persons  holding  long  time  coupon  bonds  issued  by 
a  railroad  company,  and  payable  to  "  holder ;  "  the  payment 
of  which  was  secured  by  a  deed  of  trust  in  like  terms. 
Such  bonds,  intended  to  be  thrown  upon  the  market  to  be 
circulated  as  commercial  paper,  and  used  also  as  securities 
for  permanent  investment,  are  not  within  the  reason  of  the 
rule.*  Nor  is  the  rule  applied  in  transactions  founded  upon 
accommodation  paper.  In  Miller  v.  Lamed*  the  court 

1  Wright  v.  Eaves,  10  Rich.  Eq.583.  The  bonds   were  payable  to  "the 

*  Shaw  v.  Carpenter,  54  Vt.  155.  holders,"  and  the  deed  of  trust  was 
8  George  v.  Woodward,  40  Vt.  672.  declared  to  be  "for  the  benefit,  pro- 
4  81  111.  188.  tection  and  security  of  the  persons 

*  P.   &    S.  R.  B.  Co.  v.  Thomp-      or  corporations  who  shall  hold  the 
so,  103  111.  205,  overruling  C.  D.  &      bonds  about  to  be  issued." 

V.  Ry  Co. ».  Loewenthal,  93  111.  433.         •  Miller  v.  Larned,  103  111.  562. 


INDORSEE'S  TITLE  TO  MORTGAGE.  223 

(Scott,  J.)  discussing  this  question,  say  :  "  The  principle 
underlying  the  decision  in  Olds  v.  Cummings,  and  other 
analogous  cases  in  this  court,  is,  that  the  original  mortgagor 
has  equities  that  are  older  and  superior  to  any  possessed  by 
the  assignee  of  the  notes  secured,  and  on  the  doctrine  the 
oldest  equity  must  prevail,  the  mortgagor  has  been  let  in  to 
make  the  same  defense  to  the  mortgage  in  the  hands  of  an 
equitable  assignee  as  he  could  against  the  assignor.  But 
what  application  can  this  doctrine  have  to  an  assignee  or 
holder  of  accommodation  paper  ?  It  would  be  most  un- 
reasonable to  affirm  the  grantor  in  a  mortgage  to  secure  ac- 
commodation paper,  has  any  equities  superior  to  those  of  the 
assignee  of  the  note,  who  thereby  becomes  the  equitable 
assignee  of  the  mortgage.  Any  application  of  the  doctrine 
of  Olds  v.  Cummings  to  the  maker  of  a  mortgage  to  secure 
accommodation  paper,  would  be  to  make  a  most  equitable 
and  reasonable  doctrine  the  means  of  enabling  a  party  to 
perpetrate  a  great  wrong  on  another.  A  court  of  equity 
will  not  lend  its  aid  for  any  such  purpose." 


224  NEGOTIABLE  NOTES   AND   MORTGAGES. 


CHAPTER    XVII. 

NOTES    AND    MORTGAGES    AS    COLLATERAL    SECURITY. 


§175.  The  title  of  the  pledgee  of  notes  and  mortgages. 

176.  The  pledgee,  when  subject  to  equities. 

177.  The  rights  of  the  pledgee  in  cases  of  misappropriation. 

178.  The  pledgee,  -when  chargeable  with  notice. 

179.  The  pledger's  re-transfer  of  notes  and  mortgages. 

180.  The  pledge  of  notes  and  mortgages  to  National  Banks. 

181.  The  recovery  of  pledgees  and  sub-pledgees  of  notes  and  mortgages. 

182.  The  pledgee's  sale  and  collection  of  notes  and  mortgages. 

183.  The  pledgee's  foreclosure  and  sale  of  mortgaged  lands. 


§175.  THE  TITLE  OP  THE  PLEDGEE  OF  NOTES  AND 
MORTGAGES. — The  use  by  the  holder  of  negotiable  promis- 
sory notes  of  a  third  person,  properly  indorsed,  together 
with  an  assignment  of  the  mortgage  given  to  secure  the  pay- 
ment of  the  same,  as  collateral  security  for  his  own  principal 
obligation,  vests  in  the  pledgee  the  legal  title  to  the  collat- 
eral securities,  and  enables  him,  upon  default,  to  render  the 
same  available  for  the  purpose  of  securing  payment  of  his 
own  advances.  By  such  transactions  the  pledgee  gains  an 
additional  security  as  compared  with  the  indorsement  and 
delivery  of  ordinary  negotiable  promissory  notes  as  collateral 
security.  The  note  secured  by  mortgage  has  all  the  char- 
acteristics and  privileges  of  commercial  paper ;  and  the 
pledgee  thereof  receives  the  further  collateral  security  of  the 
property  covered  by  the  mortgage  given  to  secure  its  pay- 
ment.1 As  to  the  negotiable  note,  the  pledgee  occupies  the 

1  Swift  0.  Smith,  102  U.  8.  442;  Wright  «.  Ross,  36  Cal.  414;  Wor- 
National  Bank  «.  Matthews,  98  Ib.  cester  Nat.  Bank  v.  Cheeney,  87  111. 
621;Sawyer».  Prickett,  19Wall.l47;  602;  Lowentkal  v.  McCormick,  101 


THE   PLEDGE   THEREOF. 


225 


pr  s'tion  of  a  holder  for  value,  in  the  usual  course  of  business.' 
Nor  is  it  material  that  the  note  is  indorsed  "  without 
recourse,"  by  the  pledger.*  The  assignment  of  the  mort- 
gage, conveying  the  legal  title  to  such  collateral  security,  is 
itself  an  equitable  mortgage  under  which  the  pledgee  is 
vested  with  title,  as  in  no  other  way  can  the  security  be 
made  available  to  him.8  Such  absolute  legal  transfer  may, 
however,  be  shown  to  have  been  intended  as  collateral  secur- 
ity only.4  In  Louisiana,  the  title  of  notes  secured  by  mort- 
gage passes  by  indorsement  for  the  purpose  of  collection 
only.* 

§  176.    TBE  PLEDGEE,  WHEN  SUBJECT  TO  EQUITIES. — 
Where  such  negotiable  promissory  notes,  secured  by  mort- 


Ib.  143;  Miller  v.  Larned,  103  Ib.562; 
International  Bank  v.  Jenkins,  104 
Ib.  143 ;  Zimpleman  v.  Veeder,  98 
Ib.  613;  Tooker  v.  Newman.  75  111. 
215;  Lewis  ®.  Kirk,  28  Kan.  497; 
Clasey  v.  Sigg,  51  la.  572;  Preston®. 
Case,  42  Ib.  549;  McCrum  v.  Corby, 
11  Kan.  464 ;  Rice  v.  Dillinsrham,  73 
Me.  59 ;  Brown  v.  Tyler,  8  Gray,  135 ; 
Fletcher  v.  Dickinson,  7  Allen,  23; 
Montague  v.  Boston  etc.  Ry  Co.,  124 
Mass.  242;  Briggs  v.  Rice,  130  Ib.  50; 
Morns  «.  Bacon,  123  Mass.  58;  Blunt 
v.  Norris,  Ib.  55 ;  Folcy  v.  Rose,  Ib. 
557;  Strong  v.  Jackson,  Ib.  60; 
Stevens  v.  Dedham  Inst..  129  Ib  547; 
Smith  v.  Burgess,  133  Ib.  511;  Me 
Bracken  v.  German  Ins.  Co.,  43  Md. 
471 ;  Potts  ».  Blackwell,  4  Jones  (N. 
C.  Eq.)  58;  Richardson  «.  Mann,  30 
La.  Ann.  1060;  Morris  v.  White,  28 
Ib.  855;  Logan  v.  Smith,  62  Mo.  455; 
Bell  v.  Simpson,  75  Mo.  485 ;  Gibson 
v.  Martin,  1  Nev.  256;  Whiting®. 
Paul,  13  R.  I.  40;  Walkers.  Lee,  14 
S.  C.  142 ;  George  t>.  Woodward,  40 
Vt.  672 ;  Wells  v.  Wells,  53  Ib.  1. 
15 


1  Michigan  Bank  v.  Eld  red,  9 
Wall.  544,  533;  Chicopee  Bank  v. 
Chapin,  8  Met.  40;  Stoddard  v.  Kim- 
ball,  6  Cush.  469;  Blanchnrcl  v. 
Stevens,  3  Ib.  162;  Palmer  v.  Yatcs, 
3  Sandf.  Ch.  137;  Morris  v.  Baeon, 
123  Mass.  58;  Atkinson  v.  Brooks, 
26  Vt.  569. 

3  Blunt  v.  Norris,  123  Mass.  5.>. 

9  Rice  v.  Dillingham,  73  Me.  59; 
Slee  v.  Manhattan  Co.,  1  Paige,  48; 
Pond  v.  Eddy,  113  Mass.  149;  Cults 
v.  York  Mauuf.  Co..  18  Me.  191; 
Henry  v.  Davis,  7  Johns.  Ch.  40; 
Clark  ®.  Henry,  2  Cow.  324;  Carr  v. 
Carr,  52  N.  Y.  251 ;  Clapp  v.  Shep- 
ard,  2  Met.  127;  Fulton  v.  Fulton, 
48  Barb.  581;  Wright  v.  Ross,  36 
Cal.  414. 

*  Pond  v.  Eddy,  113  Mass.  149 ; 
Rice  v.  Dillingham,  and  Henry  v. 
Davis,  supra ;  Mclntire  v.  Yates, 
104  111.  491. 

5  Richardson  v.  Mann,  20  La.  Ann. 
1060;  Commercial  Bank  v.  Martin,! 
Ib.  344. 


226  NEGOTIABLE  NOTES   AND   MORTGAGES. 

gage,  are  received  unindorsed  (indorsement  being  necessary 
to  convey  the  title),  so  that  the  pledgee  is  not  a  party  to 
the  instrument,  an  action  against  the  parties  thereto  must 
be  brought  in  the  name  of  the  assignor.  The  pledgee  there- 
fore holds  both  the  notes  and  mortgage  subject  to  equities 
.arising  from  the  fraudulent  conduct  of  the  pledger.  Having 
only  an  equitable  title  thereto,  he  is  subject  to  equities.1 
One  of  several  notes  secured  by  mortgage  was  entrusted  by 
the  owner  to  a  third  person  to  collect,  and  indorsed  so  as  to 
pass  the  title  for  this  purpose.  The  note  was  fraudulently 
transferred  after  maturity  for  a  valuable  consideration,  to 
another  person.  The  holder  of  the  note  so  receiving  it,  from 
one  not  an  owner,  and  after  maturity,  took  it  encumbered 
with  all  antecedent  equities.*  A  promissory  note,  hav- 
ing several  years  to  run,  showed  upon  its  face  that  it  was 
secured  by  mortgage,  serable,  such  note  is  not  an  instru- 
ment entitled  to  the  privileges  of  commercial  paper.  A 
pledge  of  such  a  note  under  circumstances  clearly  calculated 
to  excite  suspicion,  the  pledge  being  in  fact  an  act  of  gross 
fraud  on  the  part  of  the  person  entrusted  with  the  securities, 
is  not  supported.8  The  title  of  a  pledgee  of  a  negotiable 
promissory  note  and  mortgage  security  is  supported,  although 
the  note  and  mortgage  be  given  for  an  illegal  consideration, 
rendering  them  void  as  between  the  parties,  where  such 
note  is  indorsed  before  maturity,  for  value,  and  without 
notice  of  such  invalidity.4  Where  the  holder,  however, 
although  advancing  value,  is  chargeable  with  notice  of  the 
invalid  character  of  the  consideration  for  such  securities,  no 
right  or  title  thereto  can  be  acquired.* 


1  McCrnm  v.  Corby,  11  Kan.  464;  the  mortgage  in  Shaw®.  Carpenter, 

Blunt  c.  Norris,  123  Mass.  55;  Smith  54  Vt.  155. 

«.  Burgess,  133  Mass.  511.  6  Pierce   v.  Kibbee,   51  Vt.    559; 

1  Foley  v.  Smith,  6  Wall.  493.  Butler  v.  Slocum,  83  La.  Ann.  170. 

3  Strong  v.  Jackson,  123  Mass.  60.  A  note,  secured  by  mortgage,  -was 

4  Taylor  ».  Page,  6  Allen,  86.  The  pledged  as    collateral  security  for 
recovery    was    restricted     to    the  other  notes,  which  were  usurious, 
amount  of  the  valid  debt  secured  by  The    pledgee    was    allowed  to  en- 


THE  PLEDGE  THEREOF.  227 

§  177.  THE  BIGHTS  OF  THE  PLEDGEE,  IN  CASES  OF  MIS- 
APPROPRIATION.— Where  the  owner  of  negotiable  promis- 
sory notes,  secured  by  mortgage  or  deed  of  trust,  has 
placed  the  same  in  possession  of  another,  so  that  the  latter 
has,  by  indorsement  where  required  and  assignment,  the 
legal  title  and  apparent  absolute  ownership  of  such  securi- 
ties, an  innocent  pledgee,  receiving  such  notes  before 
maturity,  and  an  assignment  of  the  mortgage,  express  or 
implied,  upon  a  valuable  advance,  made  on  the  faith  and 
credit  of  such  apparent  title  and  ownership,  without  notice 
of  equities,  is  protected,  although  such  use  of  the  securities 
be  a  misappropriation  thereof  and  a  fraud  upon  the  real 
owner.1  The  like  rule  is  applied  for  the  benefit  of  an  in- 
nocent pledgee,  who  has  advanced  value,  in  the  usual 
course  of  business,  upon  a  negotiable  note,  secured  by 
mortgage,  where  the  act  of  misappropriation  is  made  by  an 
agent,  who  has  been  entrusted  with  such  note  indorsed  in 
blank,  and  enabled  to  appear  as  the  apparent  owner  thereof. 
Such  pledgee  is  entitled  to  enforce  the  mortgage  given  to 
secure  such  note  to  the  full  amount,  notwithstanding  the 
fraud  of  the  agent.*  An  indorsement  "  without  recourse," 

force  the  mortgage  security,  and  to  tion.  Even  by  agreement  the  mort- 
apply  the  proceeds  in  discharge  of  gage  could  not  be  made  a  security 
the  mortgage  debt,  but  not  in  pay-  for  a  note  which  it  was  not  intended 
ment  of  the  notes  tainted  with  usury.  to  secure.  The  utmost  risk  the 
Tooke  v.  Newman,  75  111.  215.  pledgee  took  was  that  B  might  dis- 
1  Morris  v.  Beacon,  123  Mass.  58.  charge  the  mortgage,  but  the  note 
A  made  a  note  to  the  order  of  B,  would  still  remain  a  valid  security; 
and  secured  by  mortgage,  duly  or  B  might  pass  the  legal  title  to  an- 
recorded.  B  indorsed  the  note  to  other,  who  in  law  would  become  the 
C,  as  collateral  security  for  a  loan  to  trustee  of  the  pledgee  of  the  note. 
a  larger  amount,  stating  that  the  *  Swift  v.  Smith,  102  U.  S.  442. 
note  carried  the  mortgage  with  it.  The  rights  of  the  holder  of  nego- 
Subsequently  B  fraudulently  substi-  tiable  promissory  notes,  secured  by 
tuted  another  note  for  the  one  trust  deed,  indorsed  in  blank  by  the 
secured  by  the  mortgage,  and  in-  owner,  and  handed  to  an  agent  for 
dorsed  it  and  the  mortgage  to  D  for  a  certain  purpose,  were  sustained, 
value.  Both  pledgees  acted  in  good  although  the  agent  misappropriated 
faith.  No  right  of  the  first  pledgee  the  same  by  pledging  them  as  col- 
was  lost  by  the  fraudulent  substitu-  lateral  security  for  his  own  note, 


228  NEGOTIABLE  NOTES   AND  MORTGAGES. 

before  maturity,  by  a  pledger  of  a  note  made  by  a  third 
person,  and  secured  by  mortgage,  although  such  note  was 
obtained  from  the  maker  by  artifice,  vests  the  title  to  the 
note  and  the  mortgage  security  in  a  pledgee  for  value,  in 
good  faith,  and  without  notice  by  the  record  of  any  pre- 
vious assignment  of  the  mortgage  or  other  equity.  The 
title  of  the  pledgee,  under  such  circumstances,  is  that  of  a 
purchaser  for  a  valuable  consideration,  and  is  preferred  as 
against  the  owner,  and  a  prior  pledgee  who  had  received 
unindorsed  the  note  originally  issued  with  the  mortgage, 
but  with  no  assignment  of  the  mortgage,  or  record  thereof, 
although  upon  a  bona  fide  advance.1  The  lien  of  a  pledgee, 
holding  the  legal  title  to  the  note  and  mortgage,  is  not  de- 
feated as  against  third  persons  chargeable  with  notice,  by 
the  fraud  or  mistake  of  the  mortgagee  in  entering  satisfac- 
tion of  the  mortgage  upon  the  record.1 

§  178.  THE  PLEDGEE,  WHEN  CHARGEABLE  WITH  NO- 
TICE.— The  pledgee  of  negotiable  paper,  secured  by  a  mort- 
gage or  deed  of  trust,  is  chargeable  with  notice  of 
misappropriation,  or  want  of  authority,  under  the  same 
presumptions  governing  in  other  cases  of  pledge  of  or- 
dinary commercial  instruments.  Where  such  securities 
show  upon  their  face  the  existence  of  a  trust,  pledgees  are 
bound  to  take  notice  thereof,  and  to  make  inquiry,  at  their 
peril.8  A,  as  trustee,  held  a  note  made  to  himself  per- 
sonally, and  a  mortgage  securing  the  payment  of  the  same, 
the  mortgage  stating  that  the  consideration  was  paid  by  A 
"  as  trustee  for  "  B,  and  referred  to  A  as  "  trustee  as  afore- 
given  for  a  loan  of  money.  Default  523;  Shaw  v.  Spencer,  100  Mass.  382; 
occurring  upon  the  personal  note  of  Fisher  t>.  Brown,  104  Ib.  261 ;  Moni- 
the  pledger,  the  pledgee,  as  a  pur-  tor  Ins.  Co.  v.  Buffum,  115  Ib.  345; 
chaser  for  value,  without  notice,  Duncan  v.  Jaudon,  15  Wall.  175. 
was  allowed  to  enforce  the  trust  General  obscurity  in  a  writing  will 
deed.  not  entitle  anybody  to  buy  it  with- 

'.Blunt  t>.  Norris,  123  Mass.  55.  out  taking  pains  to  ascertain  what 

1  Gibson  t?.  Martin,  1  Nev.  256.  the  hieroglyphics  mean.    Smith  «. 

•  Sturtevant  v.  Jaques,  14  Allen,      Burgess,  133  Mass.  511. 


THE  PLEDGE  THEREOF.  229 

said."  After  recording  the  mortgage,  A  struck  out  the 
words  "  as  trustee,"  and  then  borrowed  money  for  his  own 
use  of  C,  transferring  the  note  and  mortgage  as  collateral 
security.  The  advance  was  made  in  good  faith,  but  the 
pledgee  failed  to  read  the  mortgage,  and  made  no  examina- 
tion of  the  record.  C  being  chargeable  with  notice  of  the 
contents  thereof,  the  pledgee  was  not  regarded  as  a  bona 
fide  holder  for  value  of  the  securities,  and  was  ordered  to 
return  them  to  the  successor  in  trust.  The  Supreme  Judi- 
cial Court  of  Massachusetts  (Allen,  J.)1  say  :  "  The  note 
and  mortgage  had  reference  to  one  transaction,  and  if  L 
held  one  of  them  as  trustee,  there  was  reason  to  suppose  he 
did  the  other  also.  The  mortgage  was  a  constituent  part  of 
the  security.  It  was  not  only  a  link  in  the  title  which  he 
was  taking,  but  it  was  itself  produced  and  delivered  to  him 
as  representing  the  title.  The  truth  appears  to  be  that  the 
defendant  (the  pledgee)  accepted  the  mortgage  without 
taking  pains  to  read  it.  If  he  had  read  it  he  would  have 
discovered  all  that  was  necessary  for  his  protection.  The 
law  holds  him  to  the  legal  duty  of  reading  it,  and  of  in- 
forming himself  of  all  it  contained.  He  must  be  con- 
clusively presumed  to  have  performed  this  duty,  and  can 
not  be  heard  to  say  that  he  did  not.  His  legal  position  is 
the  same  as  if  he  had  actually  read  it."  Nor  did  the  omis- 
sion of  the  word  "  trustee "  from  the  note  excuse  the 
pledgee  from  examining  the  title  to  the  mortgage  security. 

§  179.  THE  PLEDGOR'S  RE-TRANSFER  OF  NOTES  AND 
MORTGAGES. — The  pledger  of  negotiable  notes,  secured  by 
mortgage,  may,  with  the  consent  of  the  pledgee,  re-transfer 
such  collateral  securities  to  another  pledgee,  or  for  a  new 
loan,  and  the  title  thereto  thus  obtained  will  be  enforced. 
Certain  notes  of  a  third  person,  payable  at  different  times, 
and  secured  by  a  mortgage,  were  held  as  collateral  security 
for  indebtedness.  The  pledgor  may,  with  the  consent  of 

1  Smith  v.  Burgess,  133  Mass.  511. 


230  NEGOTIABLE  NOTES  AND   MORTGAGES. 

the  pledgee,  transfer  to  another  of  his  creditors  a  portion  of 
the  notes  to  hold  as  collateral  security,  and  rray  agree  that 
the  mortgage  securing  the  payment  of  the  notes  shall  stand 
as  a  prior  security  for  the  notes  so  re-assigned,  at  the  same 
time  giving  to  the  first  pledgee  new  securities  of  equal 
value.  A  contest  arose  as  between  the  two  pledgees  upon 
the  question  of  priority  in  the  distribution  of  the  proceeds 
upon  foreclosure  and  sale  under  the  mortgage;  the  pledger's 
agreement  in  favor  of  the  second  creditor  was  supported, 
he  having  remained  the  general  owner  of  the  securities,  and 
having  furnished  other  collateral  securities  to  the  first 
pledgee.1  A  bank  loaned  money  on  negotiable  notes,  se- 
cured by  deed  of  trust.  The  loan  was  paid,  but  the  bank 
retaining  the  securities,  a  further  specific  pledge  thereof 
was  made  as  collateral  security  for  another  loan.  The 
rights  of  the  pledgee  under  the  second  loan  were  supported 
as  against  a  bona  fide  purchaser  for  value  of  the  property 
covered  by  the  mortgage  from  the  real  owner  thereof,  who 
had  obtained  a  deed  of  the  equity  of  redemption  of  the 
apparent  purchaser  from  the  person  in  whom  the  title  stood 
of  record,  and  who  gave  the  notes  and  trust  deed  for  the 
purchase  price,  such  notes  and  mortgage  having  been  trans- 
ferred for  value  to  a  pledgee  without  notice.1 

§  180.   THE  PLEDGE  OF  NOTES  AND  MORTGAGES  TO 

NATIONAL  BANKS. — A  national  bank,  holding  a  negotiable 
promissory  note  secured  by  mortgage  or  deed  of  trust,  as 
collateral  security  for  the  payment  of  loans  is  entitled,  upon 
default,  to  the  enforcement  of  the  mortgage  security, 
although  it  be  insisted  as  a  defense,  that  the  taking  of  such 
real  estate  security  by  a  national  bank  is  an  act  under  sec- 
tions 513G  and  5137  of  the  United  States  Revised  Statutes, 
ultra  vires  the  bank.8  In  the  leading  case  upon  this  subject,4 

1  George  v.  Woodward,  40  Vt.  672.  Ib.  99';  National  Bank  t>.  Matthews, 

»  Miller  v.  Lamed,  103  111.  562.  98  Ib.  821. 

1  Swope  v.  Lefflngwell,  105  U.  S.  *  National  Bank  t>.  Matthews,  98 

8;  National  Bank  t>.  Whitney,  103  U.  8.  621.    As  the  deed  of  trust  was 


THE  PLEDGE  THEREOF.  231 

a  negotiable  promissory  note,  secured  by  a  deed  of  trust, 
with  the  usual  powers  of  sale  upon  default,  was  indorsed 
with  the  mortgage  security,  to  a  national  bank  as  collateral 
security  for  a  loan.  Upon  default,  the  bank  requested  the 
trustee  to  sell  the  property.  A  bill  in  equity  was  filed  in  a 
circuit  court  in  the  State  of  Missouri  to  enjoin  the  sale,  and 
an  injunction  was  granted  and  sustained  against  such  sale. 
But  upon  a  writ  of  error  issued  from  the  United  States 
Supreme  Court,  the  right  of  the  pledgee  to  enforce  the  col- 
lection of  the  collateral  note  by  a  sale  of  the  lands  covered 
by  the  trust  deed,  was  fully  supported.  Courts  of  equity 
have  always  refused,  under  like  circumstances,  to  use  the  dis- 
cretionary powers  vested  in  their  chancellors  to  relieve  bor- 
rowers from  national  and  other  banks  or  corporations  from 
the  re-payment  of  bona  fide  loans,  upon  a  defense  of  ultra 
vires  as  against  the  lender.  The  equity  of  the  lender  of 
money  in  good  faith,  is  preferred  to  that  of  persons  and  cor- 
porations who  have  had  the  benefit  thereof  and  still  retain 
the  same,  or  the  property  acquired  therewith,  and  yet  seek 
to  avoid  repayment  upon  a  legal  technicality,  which  was 
never  intended  to  shelter  fraud.1  The  rule  is  applied,  in  the 

not  made  to  the  bank,  the  United  Leffingwell,   72  Ib.   348;    affirmed, 

States  Sup  erne  Court  held  that  it  105  U.  S.  3. 

did  not  come  within  the  letter  of  the  '  Orm  v.  National  Bank,  16  Kan. 
statute  in  any  event,  and  that,  if  it  341 ;  Macon  R.  R.  Co.  v.  Georgia  R. 
had  done  so,  the  court  would  not  R.  Co.,  63  Ga.  103;  First  Nat.  Bank 
have  afforded  the  relief  sought.  "A  v.  Hair,  36  Iowa,  443;  Argenti  «>. 
court  of  equity,"  say  the  court,  San  Francisco  Co.,  16  Cal.  255  ;  Em- 
"  is  always  reluctant  in  the  last  de-  pire  Ins.  Co.*.  Stewart,  46  Mich.482; 
gree  to  make  a  decree  which  will  Warner  v.  DeWitt  Nat.  Bank,  4 
effect  a  forfeiture.  The  bank  parted  Bradw.  312 ;  Bradley  v.  Ballard,  55 
with  its  money  in  good  faith.  Its  111.  413;  Nuerbach  v.  LeSueur 
garments  are  unspotted  under  these  Mill  Co.,  28  Minn.  291;  Thorn- 
circumstances.  The  defense  of  ultra  ton  v.  National  Exch.  Bank,  71 
•vires,  if  it  can  be  made,  does  not  Mo.  221 ;  Swope  v.  Leffingwell, 
address  itself  favorably  to  the  mind  72  Ib.  348  ;  Pancoast  v.  Trav. 
of  the  chancellor."  The  Supreme  Ins.  Co.,  79  Ind.  172  ;  Lebanon  Bank 
Court  of  Missouri  followed  the  rule  v.  Hallenbeck,  29  Minn.  322;  Hall  v. 
in  later  cases.  Thorntons.  National  Mutual  Ins.  Co.,  32  N.  H.  297;  Me 
Exch.  Bank,  71  Mo.  221 ;  Swope  «.  Clure  v.  Railroad  Co.,  13  Gray,  124 ; 


232  NEGOTIABLE  NOTES  AND  MORTGAGES. 

absence  of  restrictive  statutory  enactments,  in  favor  of  bank- 
ing and  loaning  corporations,  advancing  money  bona  fide  in 
states  or  countries  other  than  those  in  which  they  are  or- 
ganized as  corporate  bodies.1 

§  181.  THE  RECOVERY  BY  PLEDGEES  AND  SUB-PLED- 
GEES OP  NOTES  AND  MORTGAGES. — The  pledgee  for  value 
advanced  in  good  faith,  without  notice,  holding  negotiable 
promissory  notes,  secured  by  mortgage,  before  maturity,  as 
collateral  security,  is  entitled  to  enforce  the  mortgage  se- 
curity in  a  court  of  equity,  and  to  recover  the  full  face  of 
the  notes  secured,  holding  any  surplus  above  the  amount  of 
the  loan  or  debt  for  the  benefit  of  those  beneficially  entitled 
thereto.9  The  like  rule  is  enforced  in  favor  of  a  sub- 
pledgee  of  notes  and  mortgages,  receiving  the  same,  with 
the  evidence  of  the  principal  debt,  for  which  they  were 
pledged,  upon  an  advance  in  good  faith  to  the  pledgee 
thereof,  and  without  notice  of  equities.  As  against  a  sub- 
sequent purchaser  for  value  of  the  property  chargeable 
with  notice,  the  sub-pledgee  is  allowed  to  collect  the  full 
amount  of  the  note  secured  by  the  mortgage.8  In  states 
where  the  restricted  rule  prevails,  subjecting  indorsees  of 

Mott  0.  United  States  Trust  Co.,  19  Lefflngwell,   105   Ib.    3;  Blackburn 

Barb.    568  :   Silver   Lake    Bank  v.  Building  Society  t>.  Cunliff,  L.  R  22 

North,  4  Johns.  Ch.  470  ;  Carey  v.  Ch.  D.  61 ;  in  re  Cork  &  Y.  Ry.  L.R. 

Railroad  Co.,  29  Barb.  85  ;  Bissell  v.  4  Ch.  748. 

Railroad  Co.,  22  N.  Y.  258;  Baird  «.  >  Christian   Union  v.  Yount,    101 

Bank  of  Washington,  11   S.  &  R.  U.  S.  350;  Cowell  v.  Springs   Co, 

411;   Woods  v.   National  Bank,  83  100  Ib.  55;  Farmers   Loan  etc.  Co. 

Pa.  St.  57;  Winton  t>.  Little,  94  Ib.  v.  McKinney.  6  McLean,  7;  Natonn 

64;   Stone  t>.  Brown.  54  Tex.  330  ;  Water  Power  Co.  v.  Clarkin,  14  Cftl. 

Howard  Nat.  Bank  v.  Loomis,  51  582 ;  Stevens  v.  Pratt,  101  111.    206, 

Vt.  849;  Central  Trust  Co.  v.  Na-  214;  Commercial  Ins  Co.  v.  Scam- 

tional  Bank,  11    Biss.  (15  C.  L.  N.  mon,  102  Ib.  46. 

268);  Zabriskie  v.  Railroad  Co.,  23  *  McCrum  e.  Corby,  11  Kan.  464; 

How.  881;  Railroad  Co.  v.  Howard,  Gibson  v.  Martin,  1  Nev.  526;  Hurst 

7  Wall.  413;  Fleckner  v.  Bank  of  U.  v.  Coley,  15  Fed.  Rep.  645. 

8.,  8  How.  338,  353;  National  Bank  »  Miller  v.  Larned,  103  111.  562. 
t>.  Whitney.  103  U.  S.  99 ;  Swope  v. 


THE   PLEDGT2  THEKEOF.  233 

negotiable  paper,  seeking  to  enforce  payment  by  foreclosure 
and  sale  of  the  property  in  equity,  to  defenses  not  available 
against  the  note,  a  sub-pledgee  who  advances  money  to 
take  up  securities  held  in  pledge  for  a  loan  is  restricted  in 
his  recovery,  as  against  the  mortgagor  and  maker,  his  repre- 
sentatives, and  bona  fide  purchasers  for  value,  to  the  amount 
of  the  actual  advance  by  the  pledgee  upon  receiving  such 
note  and  mortgage  as  collateral.1 

Where  a  negotiable  note  and  mortgage  are  sub-pledged 
before  maturity  by  a  pledgee,  with  full  title,  for  a  greater 
sum  than  the  amount  of  the  original  loan  to  the  pledger,  a 
sub-pledgee  advancing  a  valuable  consideration  thereon,  in 
good  faith,  and  without  notice  of  equities,  is  a  purchaser  for 
value  of  such  note  and  mortgage,  to  the  extent  of  his  ad- 
vances, and  may  enforce  the  same  for  the  face  thereof, 
holding  any  surplus  for  the  persons  entitled  thereto.  The 
pledgor  having,  by  reason  of  his  misplaced  confidence  in 
entrusting  the  legal  title  and  apparent  absolute  ownership 
of  such  negotiable  securities  and  mortgage  to  a  third  person, 
enabled  him  to  deceive  an  innocent  sub-pledgee  advancing 
money  on  the  credit  of  such  title  and  ownership,  is  estopped 
to  set  up  any  defenses  existing  between  himself  and  the 
pledgee  as  against  such  sub-pledgee,  and  is  only  entitled  to 
recover  his  securities  upon  payment  of  the  full  amount 
advanced.8 

Upon  sub-pledges  of  mortgage  securities  made  for  less 
than  the  amount  of  the  original  advances,  where  the  whole 
interest  of  the  pledgee  is  assigned  for  the  greater  security  of 
the  sub-pledgee,  and  the  peisons  bound  upon  the  securities 
become  insolvent,  the  sub-pledgees  are  allowed  to  prove  for 
the  whole  amount  secured  by  the  first  pledge,  although  not 
receiving  more  than  what  is  due  them  for  the  principal,  inter- 
est, and  costs.*  The  rule  as  to  recovery  of  the  sub-pledgee 
applies  where  the  amount  advanced  by  the  sub-pledgee  is 


1  Loewenthal  v.  McCormick,  101          9  Briggs  v.  Rice,  130  Mass.  50. 
111.  143.  8  In  re  Burrell,  L.  R.  7  Eq.  379. 


234  NEGOTIABLE  NOTES  AND   MORTGAGES. 

less  than  the  sum  loaned  the  pledger  thereon  by  the  pled- 
gee. The  actual  recovery  is  limited  to  the  amount  of  the 
advances,  where  the  owner  of  the  securities  seeks  to  redeem 
the  same.1 

§  182.  THE  PLEDGEE'S  SALE  AND  COLLECTION  OF 
NOTES  AND  MORTGAGES. —  Powers  of  sale  given  in  contracts  of 
pledge  of  negotiable  promissory  notes  and  mortgages,  withr 
out  advertisement  or  notice  to  the  pledger,  and  at  public  or 
private  vendue,  while  valid,  if  carried  out  in  good  faith,  are 
yet  closely  scrutinized,  and  should  any  element  of  fraud 
enter  into  them,  no  rights  can  be  acquired  thereby.  Such 
negotiable  instruments,  although  secured  by  mortgage, 
come  within  the  general  rules  governing  the  realization  of 
negotiable  collateral  securities.  The  pledgee  theieof  is  not 
permitted  lo  sell  them  at  either  public  or  private  sale,  ex- 
cept with  the  consent  of  tie  pledger,  either  given  by  con- 
tract of  pledge,  or  agreed  to  subsequently.  A  sale  by  a 
pledgee  of  a  note  and  mortgage  to  the  mortgagor,  made  on 
a  pre-arranged  plan,  under  a  power  of  sale,  public  or  pri- 
vate, without  advertisement  or  notice  to  the  pledger,  for 
the  exact  amount  of  the  loan  theieon,  being  about  one-half 
its  face  value,  is  not  a  payment  of  the  note.  The  pledger 
may  have  his  suit  in  equity  to  foreclose  and  sell  the  land, 
the  maker  and  mortgagor  being  credited  with  the  actual 
amount  paid  at  the  sale  as  a  payment  on  the  note,  and  this 
although  the  note  is  produced  marked  "paid"  at  the  hear- 
ing.2 The  purchase  by  a  pledgee  of  notes  and  mortgages 
of  lands  at  a  foreclosure  sale  at  less  than  the  face  of  the 
notes  and  immediately  thereafter  reselling  them  for  a  sum 
greater  than  the  notes,  renders  the  pledgee  liable,  not  for 
the  excess,  but  for  a  sum  sufficient  to  pay  the  collateral 
notes.8  Where  a  pledgee  of  notes  and  mortgages  has  re- 
turned the  same  to  the  pledger  for  the  purpose  of  making 

1  Draper  v.  Snxton,  118  Mass.  427.          *  Richardson  v.  Mann,  30  La.  Ann. 
«  Zimplcman  v.  Veeder,  98  111.  013.      1060. 


THE  PLEDGE  THEREOF.  235 

collection  thereof  for  account  of  the  pledgee,  the  latter  may 
bring  trover  (or  a  statutory  substitute  therefor)  against  the 
pledgor,  upon  his  failure,  after  demand,  to  return  or  account 
for  the  collaterals.  The  measure  of  damages  in  such  a 
case,  is  the  interest  of  the  pledgee  in  the  collaterals,  being 
the  amount  of  the  debt  where  they  are  of  greater  value,  or 
their  full  value,  where  less.1 

§  183.  THE  PLEDGEE'S  FORECLOSURE  AND  SALE  OF 
THE  MORTGAGED  LAND. — The  holder  of  a  negotiable  prom- 
issory note,  secured  by  mortgage,  as  collateral  security  for 
a  debt,  is  entitled,  upon  default,  to  proceed  with  the  fore- 
closure of  the  property  included  in  the  mortgage  security, 
and  to  entry,  and  possession  thereof,  under  appropriate  pro- 
ceedings." Such  proceedings,  however,  do  not  change  the 
relations  of  the  parties  to  the  contract  of  pledge,  the  land 
being  simply  substituted  as  collateral  security  in  place  of 
the  notes  and  mortgage,  and  remaining  subject  to  redemp- 
tion.3 Nor,  as  between  the  pledgor  and  pledgee,  is  such 
foreclosure,  entry  and  possession  a  payment  of  the  debt  for 
which  the  notes  and  mortgages  are  held  as  collateral  se- 
curity.4 

1  Hurst  v.  Colcy,  15  Fed.  Rep.  645.  both  the  principal  note  and  in 
8  Brown  v.  Tyler,  8  Gray,  135.  the  conditions  of  the  mortgage, 
8  Brown 0.  Tyler, supra; Montague  in  1847,  the  pledgee  commenced 
v.  Boston  R  R.  Co ,  124  Mass.  242;  an  action  upon  the  mortgage, 
Henry  v.  Davis,  7  Johns.  Ch.  40;  obtaining  a  conditional  judgment 
Slee  v.  Manhattan  Co.,  1  Paige,  52,  for  the  amount  of  the  principal 
79;  Clapp  v.  Sheppard,  2  Met.  127;  debt  It  then  took  possession  of 
Rice  v.  Dillingham,  73  Me.  59 ;  the  land  under  execution,  which 
Hoyt  v.  Martense.  16  N.  Y.  231;  was  retained  until  1852.  when  the 
Dalton  v.  Smith.  86  N.  Y.  176.  land  was  conveyed  for  $5,500,  and 
4  Stevens  v.  Dedham  Savings  Inst.  several  successive  conveyances  were 
129  Mass.  547.  A  note  for  $7,320,  made.  The  pledgor  had  never  set- 
executed  by  H.  dated  in  1845,  pay-  tied  with  the  pledgee,  nor  received 
able  in  five  years,  secured  by  mort-  his  own  note,  nor  the  collateral 
gage,  was  indorsed  and  the  mort-  mortgage  note.  A  bill  in  equity  to 
gage  assigned  to  the  bank  as  collate-  redeem  was  brought  in  1870,  but 
ral  security  for  a  note  of  $3,500,  dismissed  because  of  laches, 
payable  in  one  year.  Upon  default  in 


236  NEGOTIABLE  NOTES   AND   MORTGAGES. 

After  such  foreclosure,  entry,  and  possession,  the  pledgee 
is  under  no  obligation  to  take  the  land  as  in  payment  of  his 
debt.  He  should  proceed  with  convenient  speed  to  reduce 
such  property  to  cash,  by  a  fair  and  proper  public  sale.1 
In  this,  he  acts  as  trustee  for  the  pledger,  and  is  required 
to  pay  over  to  him  any  balance  remaining  after  the  payment 
of  the  debt  for  which  the  notes  and  mortgage  were  held  as 
security;  or,  if  the  debt  and  other  proper  charges,  be  paid, 
to  release  and  quitclaim  the  land  to  the  pledger.*  As 
against  the  mortgagor,  the  pledgee  will  have  an  absolute 
title,  but  not  as  against  the  pledger ;  although  where  pos- 
session of  the  land  for  over  twenty  years  has  been  held  by 
the  pledgee  or  his  successive  assignees,  a  claim  to  redeem 
by  the  pledger  is  not  favored  in  equity.*  It  is  only  from 
the  time  of  the  realization  in  money,  after  foreclosure  of  the 
mortgage  securities  held  in  pledge,  that  the  statute  of  limit- 
ations begins  te  run  against  the  pledger,  where,  the  debt 
being  paid,  a  surplus  remains  in  the  hands  of  the  pledgee.4 

1  Brown  v.  Tyler,  supra.  *  Ib. ;  Ayres  v.  Waite,  10  Cush. 

*  Stevens  fl.Dedham,  supra;  Dalton  72. 

«.  Smith  86  N.  Y.  176;  Montague  t>.  *  Brown  v.  Tyler,  8  Gray,  135. 
Boston  B.  R.  Co.,  124  Mass.  242. 


THE  TITLE  OF  THE  ASSIGNEE.  237 


CHAPTER    XVIII. 

THE    ASSIGNMENT    OF   BONDS    AND    MORTGAGES. 


§184  The  assignee's  title  to  the  mortgage  security. 

185.  The  equities  to  which  the  assignee  is  subject — the  New  York  rule. 

186.  The  rule  in  New  Jersey,  Pennsylvania  and  Virginia. 

187.  The  assignment  of  bonds  and  mortgages  under  estoppel. 

188.  Limitations  of  the  application  of  estoppel  in  pais. 

189.  Estoppel  in  pais,  by  mortgagor's  certificate  of  "no  defense." 

190.  The  bond  and  mortgage,  under  indorsement,  quasi-negotiable. 

191.  Assignment  of  void,  invalid,  and  fraudulent  securities. 

192.  Payments  to  mortgagee,  after  assignment. 

193.  Release  by  mortgagee,  after  assignment. 


§  184.  THE  ASSIGNEE'S  TITLE  TO  THE  MORTGAGE 
SECURITY. — In  three  or  four  states,  notably  New  York, 
Pennsylvania  and  New  Jersey,  where  loans  are  sought  upon 
the  security  of  real  estate  as  well  as  upon  the  individual 
liability  of  the  borrower,  the  personal  evidences  of  indebt- 
edness, for  which  the  mortgage  is  given  as  collateral  security, 
are  bonds,  non-negotiable  in  character.  Such  obligations  are 
subject  to  onerous  equities  in  the  hands  of  any  assignee,  how- 
ever remote.  The  equities  include  those  existing  between 
the  original  parties,  and  attending  the  original  transac- 
tion, and  the  equitable  rights  of  third  persons,  cestuis  que 
trust,  and  others.  The  bona  fide  assignee  for  value  of 
such  collaterals  is  limited  in  his  recovery  thereon  to  the 
actual  amount  validly  due  as  between  the  original  parties, 
subject  to  set-offs,  and  the  equities  stated ;  and  the  mort- 
gage, as  an  incident  to  the  debt,  and  equally  non-negotiable, 
and  subject  to  the  like  equities,  cannot  be  enforced  by  such 
assignee  for  any  larger  sum.  Such  limited  recovery  upon 


238  BONDS  AND   MORTGAGES. 

enforcing  the  mortgage  security,  when  given  with  a  non- 
negotiable  bond,  is  consonant  with  the  approved  rule  under 
which  the  indorsee  for  value,  before  due,  in  good  faith,  of 
negotiable  promissory  notes,  secured  by  mortgage,  recovers 
the  face  value  of  the  notes,  free  from  antecedent  equities, 
when  enforcing  the  mortgage  incident.  Under  this  view, 
bonds  and  mortgages  constituting  a  poor  security  for  the 
loan  of  money,  the  use  has  become  general  of  indorsement 
of  certificates  by  mortgagors  and  obligors  that  they  have 
no  defenses,  equities,  or  set  offs.  Where  such  certificates 
are  indorsed  or  attached,  the  assignee  of  a  bond  and  mort- 
gage, without  notice  of  equities,  and  for  value  advanced  on 
the  faith  and  credit  of  the  representations  so  made,  may 
invoke  the  rules  of  estoppel  in  pais,  or  equitable  estoppel, 
as  against  the  mortgagor  and  obligor,  notwithstanding  the 
original  transaction,  as  between  the  parties,  was  without 
consideration,  or  a  gross  fraud.  Under  the  rules  stated,  a 
sub-assignee,  with  knowledge,  may  take  a  valid  title  from  a 
bona  fide  assignee  for  value,  without  notice  of  equities. 
The  representations  contained  in  such  certificates  are  of  as 
binding  effect  as  if  made  upon  the  favored  instruments  of 
commerce,  and  pass  upon  assignment  to  successive  holders 
for  value,  as  where  negotiable  paper  is  indorsed  in  blank. 
Bonds  and  mortgages,  thus  freed  from  antecedent  equities, 
become  available  collateral  securities.1 

§185.  THE  EQUITIES  TO  WHICH  THE  ASSIGNEE  is  SUB- 
JECT— THE  NEW  YORK  RULE. — In  an  early  case,  in  New 
York,1  Chancellor  Kent,  considering  the  equities  to  which 

1  Kamena  «.  Huelbig,  23  N.  J.  Eq.  App.  78  Pa.  St.  153  ;   Penn.  R.  R. 

78  ;  Woodruff  c.  Morristown  Inst.,  Go's  App.  86  Ib.  80;  Robert  v.  Hay, 

84  Ib.  174;  Shafere.  Reilly,  50  N.  Y.  91  Ib.  242  ;  Mifflin  County  Bank's 
61;  Andrews  «. 'Etna  Life  Ins.  Co,,  App.  98  Ib.  150;  Etheridgec.  Parker, 

85  Ib.  334;  Wegh  t>.  Boylan,  Ib.  894;  76  Va.  247  (14  Rep.  186);  Ho  well  v. 
Riggs  v.  Pursell,  87  Ib.  608  ;   Me  Hall,  5  Lea,  405. 

Murtrie  t>.  Twitchell,  11  Pbila.  357  ;  •  Beebe  e.  Bank  of  New  York,  1 
Holtz  c.  Belden,  12  Ib.  498;  Asbton's  Johns.  552,  where  the  majority  of 


THE  TITLE  OF  THE   ASSIGNEE.  239 

the  assignee  of  a  non-negotiable  bond,  seeking  to  enforce 
the  mortgage  security,  was  subject,  restricted  the  same  to 
those  existing  as  between  the  mortgagor  and  mortgagee 
only.  A  similar  opinion  was  stated  by  Justice  Sutherland, 
in  a  later  case1  and  in  Corning  v.  Murray.*  Even  in  these 
early  cases,  a  majority  of  the  court  held  the  more  extended 
view,  and  the  question  was  finally  settled  in  Bush  v.  Lath- 
rop,*  where  the  rule  was  established  that  the  assignee  of  a 
bond  and  mortgage  takes  only  such  title  as  his  assignor  had 
and  no  other,  and  is  subject  as  well  to  all  the  equities  of 
third  persons  as  to  those  of  the  original  mortgagor  and 
mortgagee.  In  that  case  the  pledgee  of  a  bond  and  mort- 
gage, holding  the  same  under  an  assignment  of  the  absolute 
title  thereto  as  collateral  security  for  a  smaller  sum  than 
the  face  of  the  bond,  made  a  sub-pledge  thereof  to  a  third 
person  who  advanced  its  full  value  in  good  faith,  without 
notice.  The  fact  that  an  assignee  has  no  notice  of  such 
equities  at  the  time  he  makes  his  advance,  is  immaterial.4 
The  rule  announced  was  modified  in  later  cases,8  but  in  the 
leading  case  of  the  Trustees  of  Union  College  v.  Wheeler ' 
the  Court  of  Appeals  of  New  York  declared  that  Bush  v. 
Lathrop,  supra,  had  been  overruled  only  as  to  the  point 
that  an  assignor  of  a  chose  in  action  is  estopped  to  set  up 
any  equities  affecting  the  title  between  himself  and  his  as- 
signee is  an  action  brought  by  a  second  assignee,  and  not 
as  qualifying  the  rule  as  to  the  rights  of  an  assignee  in  en- 
forcing the  mortgage,  or  as  to  equities  growing  out  of  the 
chose  in  action  itself.  The  rule  is  declared  well  settled 
that  the  assignee  of  a  bond  and  mortgage  takes  the  security 
subject  to  equities  attending  the  original  transaction,  that 

the   court    overruled    the   learned  *  Bank  for  Savings  t>.  Frank,  45  N. 

chancellor.    Clute  v.  Robinson,  2  Ib.  Y.  Supr.  Ct.  404. 

612;  Livingston  «.  Dean,   2  Johns.  6  Dillaye  v.  Commercial  Bank,  51 

Ch.  479.  N.  Y.  345 ;  Moore  v.   Metropolitan 

1  James  v.  Morcy,  2  Cow.  298.  Bank,  55  Ib.  41. 

»  3  Barb.  652.  «  61  N.  Y.  88. 

«  22  N.  Y.  535. 


24:0  BONDS  AND  MORTGAGES. 

he  takes  no  greater  rights  than  his  assignor,  and  that  the 
true  test  is,  to  inquire,  what  can  the  mortgagee  do  by  way 
of  enforcement  of  it  as  against  the  property  mortgaged. 
What  he  can  do,  the  assignee  can  do,  and  no  more.  The 
rule  that  the  assignee  of  a  bond  and  mortgage  takes  the 
security,  subject  to  equities  attending  the  original  transac- 
tion in  favor  of  the  mortgagor  and  of  prior  equitable  claims 
of  third  persons,  is  followed  in  several  decisions,  and  is  the 
rule  in  New  York  state.1 

§  186.  THE  RULE  IN  NEW  JERSEY,  PENNSYLVANIA  AND 
VIRGINIA. — The  established  rule  in  New  Jersey  is  that  the 
assignee  of  a  mortgage  given  to  secure  a  bond  (and  it  would 
seem*  a  promissory  note)  receives  it  subject  to  all  defenses 
which  the  mortgagor  may  have  against  it,  but  free  from 
any  secret  equities  existing  in  favor  of  third  persons,  cestuLs 
que  trust,  and  others,  of  which  the  assignee  has  no  notice.1 
In  cases  where  such  assignee  has  notice  of  equities  of  third 
persons,  he  is  subject  thereto.4  The  assignee  takes  the 
security  subject  to  all  the  equities  of  the  mortgagor, 
whether  open  or  secret  ;*  and  to  protect  himself  from  loss, 
such  assignee  should  learn  from  the  mortgagor,  before 
taking  an  assignment  of  the  bond  and  mortgage,  whether 
there  be  any  defenses,  set-offs  or  objections  thereto.* 
A  sub-assignee  from  an  assignee,  with  constructive  notice 

1  Ingraham  9.  Disborough,  47  N.  Farland    v.  Gilchrist,    25  Ib.   487; 

Y.  421 ;  bchaefer  v.  Reilly,  50  Ib.  61 ;  Starr  ».  Hasbrouck,  26  Ib.  414 ;  Bush 

Greene   v.   Warwick,    64  Ib.    220;  v.  Cushmau,  27  Ib.  181;  Putnam  ». 

Crane  v.  Turner,  67  Ib.  487;  Bank  Clark,  29  Ib.  415;  Vredenburgh  v. 

for  Savings  t>.  Frank,  45  N.  Y.  Supr.  Burnett,  31  Ib.  231 ;  8.  c.  34  Ib.  252; 

Ct.  404;  Viele  v,  Judson,  82  Ib.  381 ;  Woodruff  v.  Morristown  Inst.  34  Ib. 

Davis  v.  Leopold,  87  N.  Y.  620.  174. 

'  Woodruff  v.  Morristown  Inst.  34  *  Losey  t>.  Simpson,  supra;  D;in- 

N.  J.  Eq.  174.  bury  «.  Robinson,  14  N.  J.  Eq  213. 

1  Shannon  v.  Marsclis,  1  N.  J.  Eq.  •  Conover  v.  Van  Mater,  18  N.  J. 

413;  Losey  «.  Simpson,  11  Ib.  254;  Eq.  484;  Atwatcr  v.  Underbill,   22 

Woodruff  v.  Depue,  14  Ib.  175;  At-  Ib.  606. 

•water  v.  Underbill,  22  Ih.  17,  599;  •  Jones  v.  Esler,  18  N.  J.  Eq.  61 ; 

Kamena  v.  Huelbig,  23  Ib.  78 ;  Me  Losey  v.  Simpson,  supra. 


THE  TITLE   OF   THE   ASSIGNEE.  241 

of  prior  equities,  stands  in  no  better  position  than 
his  assignee.1 

In  Pennsylvania,  an  assignee  for  value  of  a  non-nego- 
tiable bond  and  mortgage  is  subject  to  all  equities, 
open  and  secret,  of  the  mortgagor,  but  not  subject  to  equi- 
ties of  third  persons  of  which  he  had  no  notice,  express  or 
implied;*  or  subject  to  the  same  equities  and  rules  that  gov- 
ern other  non-negotiable  instruments  or  claims.3  The  as- 
signee is  not  subject  to  equities  existing  between  the  mort- 
gagor and  a  prior  assignee  of  the  same  mortgage.4  The 
obligor  and  mortgagor,  who  has  not  estopped  himself  by 
affirmative  acts  or  representations  or  neglects,  upon  the 
faith  of  which  an  assignee  has  advanced  his  money,  is  en- 
titled to  insist,  as  against  any  assignee  of  the  securities,  upon 
any  defense  or  equity  which  could  have  been  insisted  upon 
as  against  the  obligee  and  mortgagee.5 

In  Virginia,  it  was  held  in  an  early  case,6  that  an  assignee 
of  a  non-negotiable  chose  in  action,  like  a  bond  secured  by 
mortgage,  receives  it  subject  to  all  the  equities  of  the 
debtor  against  the  assignor  existing  at  the  date  of 
the  assignment,  or  which  arise  after  the  date  of  the  assign- 
ment, and  before  the  debtor  has  notice  of  it,  and  this 
notwithstanding  the  assignment  be  for  value  received,  and 
without  notice  of  equities.  The  rule  applies  only  where  the 
debtor  has  an  equity  for  relief,  or  a  ground  of  defense  based 
on  honest  transactions  between  himself  and  his  assignor, 
and  is  not  intended  as  a  cover  for  fraud.  It  was  not 
applied  in  a  case  where  a  married  woman,  with  power  to 

1  Rose  v.  KirabalT,  16  N.  J.  Eq.  185.  App.,  3  Grant,  281;  McCandless  v. 

9  Davis  v.  Barr,  9  S.  &  R.   140 ;  Engle,  51  Pa.  St.  309. 

Mott  v.  Clark, 9 Pa.  St.  399;  Taylors  8  Hortsman  v.  Gerker,  49  Pa.  St. 

Gitt,  10  Ib.  428;  Prior  v.  Wood,  31  382. 

Ib.  399;  Michener  v.   Cavendor.   38  4  Reineman  ®.  Robb,   98    Pa.   St. 

Ib.    337;    McConnell    v.    Wenrich,  474;  Blair  v.  Matliiott,  supra;  Dow- 

16  Ib.  365;  Twitchell  v.  McMurtrie,  ney  v.  Thorp,  63  Ib  322. 

77   Ib.   383;    Mifflin    County  Nat.  *     Asbton's  App.  73  Pa.  St.  153; 

Bank's  App.,  98  Ib.  150;    Blair  v.  Ilutclunson  v.  Gill,  91  Ib.  253. 

Mathiott,   46  Ib.  262 ;    Wetkerell's  «  Norton  v.  Rose,  2  Wash.  233. 
16 


242  BONDS   AND   MORTGAGES. 

convey  her  real  estate,  executed  a  bond  secured  by  a  deed 
of  trust,  and  the  securities  passed  by  assignment  to  a  bona 
fide  purchaser  for  value,  without  notice  of  the  fraud.  The 
equities  of  the  assignee  were  preferred  as  against  a  third 
person,  who  had  actively  participated  in  the  fraud,  and  was 
seeking  to  defeat  his  title.1 

§  187.  THE  ASSIGNMENT  OP  BONDS  AND  MORTGAGES 
UNDER  ESTOPPEL. — The  rules  of  equitable  estoppel  are  in- 
voked for  the  benefit  of  the  assignee  for  value  without 
notice,  of  bonds  and  mortgages,  to  relieve  him  from  the 
onerous  defenses  and  equities  to  which  he  is  usually  sub- 
ject in  enforcing  his  mortgage  security,  although  advancing 
a  valuable  consideration,  in  good  faith,  and  without  notice. 
The  rules  of  estoppel  are  applied  where  one  person  either 
by  words  or  conduct,  induces  another  to  believe  that  he 
may  safely  take  a  certain  security,  and  he  relying  upon 
such  representation,  acquires  such  security,  the  former  is 
never  permitted  in  a  court  of  equity  to  overthrow  the  title 
so  acquired.9  A  mortgagor  is  estopped  where  by  con- 
cealing his  equities  or  misleading  an  assignee,  justice 
would  be  defeated  by  allowing  him  to  set  up  a  defense 
founded  on  an  equity  available  as  against  the  mortgagee.1 

The  rules  of  equitable  estoppel  are  also  applied  where 
an  owner  of  a  bond  and  mortgage  entrusts  the  same  to  an 
agent,  so  that  he  lias  the  full  legal  and  equitable  title  and 
the  apparent  absolute  ownership  thereof,  by  whom  they 
are  assigned,  without  notice,  to  an  innocent  person  who 
advances  his  money  upon  the  faith  and  credit  of  such  title 
and  apparent  ownership.4  The  rules  are  also  applied  in 

1  Etheridirc  v.  Parker,  76  Va.  247  »  Woodruff  v.  Morristown  Inst,  34 

(14  Rep.  18fi).  N.  J.  Eq.  174. 

*  Morns'  Canal  etc.  Co.  v.  Lewis,  4  Knraena  v.  Huelbig,  23  N.  J.  Eq. 

12  N.  J.  Eq.   832;   Brinkcrhoff  v.  78. 
Brinkerhoff,    23  Ib.  477;  Woodruff 
t.  Morristown  Inst.,  84  Ib.  174. 


THE  TITLE   OP  THE  ASSIGNEE.  243 

favor  of  persons  advancing  value  in  good  faith,  as  against 
cestuis  que  trust  in  cases  where  a  trustee  holds  bonds  and 
mortgages  with  an  apparently  absolute  power  of  disposi- 
tion.1 It  was  also  enforced  in  Moore  v.  Metropolitan  Bank1 
in  which  a  bona  fide  purchaser  for  value  of  a  non-negotiable 
chose  in  action  from  one  upon  whom  the  owner  had  by 
assignment,  conferred  the  apparent  ownership,  making 
such  purchase  on  the  faith  thereof,  obtained  a  valid  title  as 
against  the  real  owner  and  the  world.2 

§  188.  EQUITABLE  LIMITATIONS  UPON  THE  APPLICATION 
OF  ESTOPPEL. — In  order  that  the  equitable  rules  of  estoppel 
in  pais  may  be  applied,  it  is  necessary  that  the  mortgagor 
shall  have  done  an  act  or  made  an  admission,  the  natural 
effect  of  which  is  to  influence  the  conduct  of  the  assignee, 
and  which  has  induced  him  to  change  his  position  or  condi- 
tion, so  that  if  the  mortgagor  is  afterwards  permitted  to  deny 
the  truth  of  his  conduct  or  his  words,  the  assignee  will 
suffer  injury.8  And  where  a  trustee  has  made  a  colorable 
assignment  of  bonds  and  mortgages,  for  his  own  benefit,  to 
an  assignee  for  value,  chargeable  with  notice  of  the  misap- 
propriation, no  rights,  as  against  the  cestuis  que  trust,  can  be 
acquired  by  such  assignee,  by  reason  of  his  mal  fides*  A 
person  who  is  seeking  to  protect  himself,  as  against  clear 
proof  of  fraud  and  misappropriation  in  the  original  transac- 
tion between  the  mortgagor  and  mortgagee,  by  invoking  the 
rules  of  equitable  estoppel  is  himself  bound  to  the  exer- 
cise of  good  faith  in  his  subsequent  connection  with  the 
collaterals,  and  must  show  that  his  advance  of  value  was 
made  promptly  upon  his  faith  and  belief  in  the  truth  of  the 
representations  made  and  as  a  proximate  result  thereof,  and 


1  Danbury  v.  Robinson,  14  N.  J.  3  Mutual  Life  Ins.  Co.  ? .  Norris, 

Eq.  213;  First  National  Bank  v.  Cor-  31  N.  J.  Eq.  585  ;  Woodruff  v.  Nor- 

ry,  22  Hun,  339  ;  Dillaye  v.   Cora-  ristown  Inst.,  34  Ib.  174. 

mercial  Bank,  51  N.  Y.  345.  4  Dcy  «.  Dcy,  26  N.  J.  Eq.  182. 

»  55  N.  Y.  81. 


244  BONDS   AND  MORTGAGES. 

that  lie  will,  as  an  innocent  person,  be  prejudiced  if  they 
are  allowed  to  be  disputed.1 

§  189.  ESTOPPEL  IN  PAIS,  BY  MORTGAGOR'S  CERTIFI- 
CATE OF  "  No  DEFENSE." — The  rules  of  estoppel  in  pais  or 
equitable  estoppel,  as  applied  in  favor  of  assignees  for  value 
of  bonds  and  mortgages,  are  most  frequently  invoked  in 
cases  where  the  mortgagor  and  obligor,  upon  the  execution 
of  the  bond  and  mortgage,  has  indorsed  a  certificate  there- 
on to  the  effect  that  he  has  "  no  defenses,  equities,  or  set- 
offs  of  any  kind  "  against  such  mortgage,  or  that  the  same 
is  a  valid  security,  and  that  he  has  received  full  payment, 
or  other  like  terms.  In  such  cases,  the  assignee  who  has 
advanced  value  on  the  faith  of  such  certificate,  in  good 
faith,  without  notice,  is  entitled  to  enforce  the  security, 
although  there  be  fraud  or  want  of  consideration  as  between 
the  mortgagor  and  mortgagee.9  Where  a  mortgagor  has 
signed  a  certificate  that  he  has  "  no  defense"  to  such 
security,  the  fact  that  an  assignment  of  such  bond  and  mort- 
gage is  an  actual  misappropriation  by  an  agent  entrusted 
therewith,  with  full  title,  is  no  defense  as  against  an  assig- 
nee for  value,  without  notice.8  Even  where  the  money 
thus  obtained  has  never  been  accounted  for,  the  mortgage 
security  is  not  affected  by  such  misappropriation,  the  pur- 
chaser being  under  no  obligation  to  look  to  the  application 
of  such  proceeds,  nor  responsible  for  their  misappropria- 
tion/ 

Such  certificate  of  "  no  defense  "  defeats  the  equities  of 
third  parties  arising  out  of  a  collateral  agreement,  the  assig- 

1  Andrews  «.  Etna  Life  Ins.  Co.,  »  Robertson  v.  Hay,  91  Pa.  St.  242; 

85  N.  Y.  334.  Hutchinson  t>.  Gill,  Ib.  253. 

*  McMurtriee.  Twitchell,  11  Phila.  4  Gray's  Admr.  v.  Bank  of  Ken- 

851  ;  Ashton's  App.  73  Pa.  St.  158;  tucky,  29  Pa.  St.  365 ;  Pa.  R  R.  Co 'a 

Diercks  «.  Kennedy,  16  N.  J.  Eq.  App.  86  Ib,  60 ;  Robertson  v.  Hay. 

210 ;  Bush  v.  Cushman,  27  Ib.  131 ;  supra  ;    Hutchinson    «.    Gill,     su- 

Woodruff  v.  Morristown  Inst.  34  Ib.  pra. 
174.    See  Raley  v.  "Williams,  73  Mo. 
810. 


THE  TITLE   OP  THE  ASSIGNEE.  245 

nee  having  no  notice  thereof.1  Nor  will  a  mortgagor  be 
permitted  to  set  up  usury  in  the  loan,  where  he  has  given 
such  certificate,  as  against  an  assignee  for  value,  without 
notice.9  Nor  will  the  want  of  a  formal  acknowledgment 
by  a  wife  of  a  mortgagor  securing  the  payment  of  a  bond,  in 
which  her  husband  joined,  affect  the  application  of  the 
rules  of  equitable  estoppel  arising  from  such  certificates  of 
44  no  defense."1  But,  as  delivery  and  assignment  of  a  bond 
and  mortgage  for  which  no  value  is  paid,  as  between  the 
parties,  is  essential,  a  bona  fide  assignee  thereof  for  value, 
receiving  it  at  a  time  subsequent  to  its  execution,  is  not  en- 
titled to  priority,  in  the  proceeds  of  the  mortgaged  proper- 
ty, as  against  an  intervening  lienor,  in  good  faith,  who  has 
complied  with  all  statutory  requirements  as  to  notice, 
although  the  mortgage  was  executed  and  recorded  prior  to 
the  attaching  of  his  lien.  Nor  is  it  material,  as  against  the 
equity  of  such  third  person,  that  at  the  tim-e  of  the  assign- 
ment, the  mortgagor  made  an  affidavit  falsely  reciting  that 
the  mortgagee  had  advanced  the  whole  sum  without  abate- 
ment, and  that  there  were  no  off-sets,  defenses,  or  counter- 
claims, and  although,  as  against  the  mortgagor,  an  estoppel 
to  show  the  truth  arose.4 

§  190.  THE  BOND  AND  MORTGAGE,  UNDER  INDORSE- 
MENT, QUASI-NEGOTIABLE. — TTnder  the  application  of  the 
rules  of  estoppel  in  pais  or  equitable  estoppel,  arising  upon 
the  indorsement  of  certificates  of  no  defense  or  equities,  and 
like  declarations,  or  acknowledgments  of  the  receipt  of 
the  whole  sum  named,  and  by  other  affirmative  acts  or  neg- 
lects of  the  mortgagor,  a  bona  fide  sub-assignee  for  value 
without  notice,  acquires  a  good  title  as  against  the  owner, 
or  third  persons,  or  creditors,  although  such  bond  and  mort- 
gage were  fraudulently  obtained  by  his  assignor.  Upon  the 

1  Riggs  v.  Pursell,  87  N.  Y.  608.  *  Holtz  v.  Belden,  12  Phila.  498 ; 

*  Wegh  v.  Boylan,  85  N.  Y.  394,      Howeli  v.  Hall,  5  Lea,  405. 
401.  *  Schaf er  v.  Rcilly,  50  N.  Y.  61. 


246  BONDS  AND   MORTGAGES. 

same  rule  of  estoppel  in  pais,  a  bona  fide  grantee  for  value 
without  notice  of  a  prior  unrecorded  deed,  acquires  a  valid 
title,  although  his  grantor  is  chargeable  with  full  notice 
of  fraud.1  The  rules  of  equitable  estoppel  are  also  applied 
for  the  benefit  of  sub-assignees  for  value  of  bonds  and  mort- 
gages, upon  which  such  certificates  of  payment  and  of  no 
defense  have  been  indorsed,  in  cases  where  they  have  ac- 
quired the  same  under  assignment  from  a  bona  fide  holder 
for  value,  without  notice,  although  chargeable  with  no- 
tice of  fraud  or  breach  of  trust  in  the  original  transaction. 
Such  representations  indorsed  upon  bonds  and  mortgages 
partake,  under  the  operation  of  the  rules  of  estoppel  in  pais, 
of  the  nature  of  blank  indorsements  of  negotiable  instru- 
ments. They  pass  from  hand  to  hand,  and  any  subsequent 
assignee  thereof,  although  having  notice  of  equities,  may 
claim  protection  under  a  bona  fide  holder  for  value,  without 
notice,  in  the  line  of  assignments.  Such  rules  of  estoppel 
in  pais  are  supported  upon  the  ground  that  where  bonds  and 
mortgages  are  issued  indorsed  as  stated,  for  the  purpose  of 
obtaining  money  thereon  for  the  use  of  the  mortgagor,  it  is 
a  presumption  therefrom  that  the  intention  of  the  mort- 
gagor was  that  the  securities  should  be  available  as  collat- 
eral or  otherwise,  and  that  the  market  should  not  be  closed 
upon  the  first  assignee,  except  upon  his  consent  to  indorse 
a  new  certificate.,  If  the  rule  were  otherwise,  a  bona  fide 
assignee  for  value,  without  notice,  of  a  bond  and  mortgage, 
so  indorsed,  would  lose  one  of  the  chief  advantages  neces- 
sarily belonging  to  that  favored  position.4 

§191.  ASSIGNMENT  OF  VOID,  INVALID  AND  FRAUDU- 
LENT SECURITIES. — Where  the  mortgage  security  itself  is 
absolutely  void,  it  is  not  enforced  as  security  for  any  pur- 
pose of  reimbursement  or  indemnity.8  Where  a  conveyance, 

1  Wegh  v.  Boylan,  85  N.  Y.  394 ;  *  Boyd  v.  Dunlap,  1  Johns.  Ch. 

Sclmfer  v.  Reilly,  50  N.  Y.  01.  478;  Union  Nat.  Bank  «.  Warner, 

9  Ashton's  App.  73  Pa.  St.  153;  12  Hun,  300;  Savage  v.  Murphy,  34 

McConnell  v.  Wenrich,  10  Pa.  St.  N.  Y.  508;  Shand  «.  Handlcy,  71  Ib. 

365  ;  Mott  t>.  Clark,  9  Ib.  405.  319. 


THE  TITLE  OF  THE  ASSIGNEE.  247 

made  by  a  husband  through  a  third  party  to  his  wife,  is 
fraudulent  as  to  the  creditors  of  the  husband,  and  the  wife 
is  a  party  to  the  fraud,  no  protection  for  any  sum  paid  or 
liability  incurred  will  be  given  her.1  Otherwise,  where 
an  assignee  for  value  is  without  notice  of  the  fraud.  In  such 
case,  the  assignee  is  protected  to  the  amount  of  his  advan- 
ces.* In  cases  of  fraud,  the  assignee  for  value,  without 
notice,  is  not  allowed  to  enforce  the  personal  obligation  of 
the  bond,  although  his  claim  under  the  mortgage  security  is 
good  as  against  the  land.  As  assignee  of  a  non-negotiable 
bond,  he  stands  in  the  same  position  as  l|is  assignor,  and  in 
the  absence  of  fraud,  gross  negligence,  or  misconduct  on  the 
part  of  the  obligor  or  maker,  is  subject  to  all  the  equities 
against  such  bond  in  the  hands  of  the  original  obligee  or 
payee.3  Nor  will  a  bond  and  mortgage,  while  invalid  in  the 
hands  of  the  mortgagee,  become  a  valid  security"  in  the  hands 
of  an  assignee  for  value,  chargeable  with  notice.4  Nor,  when 
a  valid  bond  and  mortgage  is  assigned  to  secure  the  per- 
foimance  of  an  agreement  void  for  illegality,  will  equity  aid 
the  assignee  in  the  enforcement  of  the  mortgage  security.* 

§192.  PAYMENTS  TO  MORTGAGEE,  AFTER  ASSIGNMENT. 
— Payments  upon  a  bond  secured  by  mortgage  by  the  mort- 
gagor to  the  mortgagee,  made  after  an  assignment  thereof 
by  the  latter,  when  made  in  good  faith,  without  notice, 
actual  or  constructive,  of  the  assignment,  are  valid.  The 
sums  thus  paid  in  good  faith  are  credited  on  the  bond  and 

1  Davis  v.  Leopold,  87  N.  Y.  620.  assignee,  and  partly  for  cash,  which 

*  Van  Wyck  v.  Baker,  16   Hun,  he  applied  to  his  private  use. 

168;    Davis  n.   Leopold,   87  N.  Y.  *  Johnson  v.  Bush,  3  Barb.   Ch. 

620.  207;  Dcwitt  v.  Brisbane,  16  N.  Y. 

8  Feltz  v.  Walker,  49  Conn.  93.  508;    Talmage  ».  Pell,    7  Ib.  328; 

4  Pendleton  v.  Fay.  2  Paige's  Ch.  Leavitt  v.  Palmer,  3  Ib.  1;  Schroep- 

201,  where  an  insolvent  trustee  as-  pelfl.  Corning,  5  Denio,  236;  s.  c.  6 

signed  a  mortgage  purporting  on  its  N.  Y- 107;  Adams  v.  Rowan,  8  S.  & 

face  to  be  given  to  him  as  trustee,  M.  621. 
partly  in  payment  of  his  debt  to  the 


248  BONDS   AND   MORTGAGES. 

mortgage,  as  against  any  assignee  thereof.1  Nor  is  a  pay- 
ment made  before  maturity  evidence  of  bad  faith ;  nor  the 
non-production  of  the  bond  and  mortgage  and  indorsement 
of  such  payment  thereon  when  made.  No  presumption  that 
the  transaction  is  not  bona  fide  arises  where,  upon  payment 
in  full  of  the  debt,  the  securities  are  not  re-delivered  and  no 
satisfaction  of  the  mortgage  executed,  and  no  inquiries  made 
relative  thereto.  Mere  failure  to  produce  such  non-negotia- 
ble securities  is  not  of  itself  sufficient  to  charge  the  mort- 
gagor with  the  duty  of  investigation.8  In  order  to  protect 
himself  from  bona  fide  payments  by  the  mortgagor  to  the 
mortgagee  after  assignment,  an  assignee  of  a  bond  and  mort- 
gage should  notify  the  mortgagor  himself.8  Where  a  bond 
and  mortgage  were  assigned  for  value,  but  were  not  deliv- 
ered at  the  time,  being  held  as  collateral  security  for  a  note 
by  a  third  party,  who  was  subsequently  paid  by  the  mort- 
gagor, an  assignee,  upon  foreclosure,  having  taken  such 
mortgage  with  the  same  equities  as  his  assignor,  is  subject 
to  a  credit  on  the  mortgage  of  the  amount  of  the  note  paid.4 
In  the  leading  case  of  Matthews  v.  Walwyn,  a  non-negotia- 

1  Foster  «.  Beals,  21  N.  Y.  247;  rests  as  to  discharge  his  lien.     If  an 

Trustees  of  Union  College  v.  Whee-  assignee  sees  fit  to  leave  him    this 

ler,  61   Ib.  88,  111 ;  Van  Keuren  v.  apparent  authority,  he  can  not  com- 

Corkins,  66  Ib.  771 ;  Jones  v.  John-  plain  of  its  exercise  as  to  persons 

son,  6  Johns.  Ch.  427;  Insurance  Co.  acting  in  good  faith,  but  must  be  re- 

t.  Smith,  2  Barb.  Ch.  82;  Mitchell  v.  garded  as  represented  by  and  iden- 

Burnhan,  44  Me.  303 ;  Bank  v.  An-  tiffed  with  the  mortgagee." 

derson,   14  Iowa.   544  ;  Johnson  v.  *  Van  Keuren  v.  Corkins,  66  N.  Y. 

Carpenter,  7  Minn.  176 ;  Williams  v.  77 ;  Foster  v.  Beals,  21  Ib.  247. 

Sorrell,  4  Ves.  389.    In  Trustees  etc.  «  Reed  v.  Marble,    10  Paige,   408; 

«.  Wheeler,   sunra,   the  court  say:  James  v.  Corey,  2  Cowen,  258;  N.Y. 

"Before  the  assignment  the  mort-  Life  Ins.  Co.  v.  Smith,  2  Barb.  Ch. 

gagee  had  complete  power  to  dis-  82;  Meghan  v.  Mills,  9  Johns.  64; 

charge  the  debt  as  well  as  the  mort-  Say  v.  Dascomb,  1  Hill,  552  ;  Briggs 

gage,   either  in  part  or  absolutely.  v.  Dorr,  19  Johns.  95;  Van  Keuren 

That  power  must  be  presumed  to  «.    Corkins,    supra ;    Heermaus    v. 

continue  until  notice  to  the  contrary.  Ellsworth,  64  N.  Y.  159. 

By  means  of  it  he  may  violate  the  *  Kamena  v.  Ilu'jlbig.  23  N.  J.  Eq. 

equities  of  third  parties,  and  his  con-  78. 
duct  may  so  react  on  his  own  into- 


THE  TITLE  OF  THE  ASSIGNEE.  249 

ble  bond  and  mortgage  securing  the  same  were  fraudulently 
assigned  by  the  mortgagee,  who  thereafter  received  large 
payments  which  should  have  been  credited  upon  the  mort- 
gage debt.  The  assignee  subsequently  sought  to  foreclose. 
The  recovery  upon  the  mortgage  in  equity  was  restricted 
to  what  was  really  due  upon  the  bond,  following  the  rule  in 
law.1 

§  193.  RELEASE  BY  MORTGAGEE,  AFTER  ASSIGNMENT. — 
The  rule  sustaining  payments  made  by  the  mortgagor  to  the 
mortgagee  after  assignment  but  before  notice  thereof,  is 
applied  in  cases  where  the  mortgagee,  after  such  assignment, 
and  before  notice  to  the  mortgagor,  releases  the  whole  or  a 
part  of  the  land  covered  by  such  mortgage.  An  assignee 
of  such  bond  and  mortgage  is  bound  by  such  release  as  he 
is  by  payments  of  the  mortgagor  made  bona  fide.  The 
rule,  however,  is  restricted  in  its  application  to  persons 
executing  the  mortgage  directly  or  indirectly  through 
trustees.5  A  bond  and  mortgage  were  assigned  by  an  .ad- 
ministrator of  a  deceased  mortgagee,  who  subsequently  by 
mistake  discharged  the  mortgage  without  receiving  pay- 
ment. The  discharge  was  duly  recorded,  and  the  premises 
were  then  sold  to  a  bona  fide  purchaser  for  value,  without 
notice.  The  assignee  of  the  securities  brought  suit  to 
foreclose.  The  effect  of  the  recording  of  the  release  of 
the  mortgage  being  to  cancel  the  record  thereof,  the  subse- 
quent purchaser  for  value  in  good  faith,  without  notice, 
was  protected.8  But  the  cancellation  of  a  mortgage  on 
the  record  is  only  prima  facie  evidence  of  its  discharge,  and 

1  4    Yes.   126.    Referring  to  this  better  in  equity  than  it  is  at  law.  So 

case,    the    United    States    Supreme  neither  can  it  be  worse.    Upon  this 

Court,  in  Carpenter  «.  Longan,   16  ground  we  place  our  judgment." 

Wall.  271,  say:     "The  principle  is  J Jones  v.   Smith,  22   Mich.  260 ; 

distinctly  recognized  that  the  meas-  Trustees  of  Union  College  v  Wheeler, 

ure  of  liability  upon  the  instrument  61   N.  Y.  88;  Stocks  v.   Dobson,  4 

secured  is  the  measure  of  the  liability  De  G.  M.  &  G.  11. 

chargeable  upon  the  security.     The  *  Ely  v.   Scofield,  35   Barb.  330  ; 

condition  of  the  assignee  can  not  be  Swartz  v.  Leist,  13  Ohio  St.  419. 


250  BONDS   AND   MORTGAGES. 

the  fact  that  such  cancellation  was  procured  or  made  by 
fraud  or  accident,  or  in  mistake,  is  subject  to  proof  by  an 
assignee  or  party  interested.1  Nor  will  such  cancellation 
affect  the  right  to  hold  other  collateral  securities,  so  long  as 
the  debt  secured  by  such  mortgage  remains  unpaid.1 


CHAPTER   XIX. 

BONDS  AND  MORTGAGES  AS  COLLATERAL  SECURITY. 

§194.  The  use  of  bonds  and  mortgages  as  collateral  security.,, 

195.  Tbe  pledge  of  bonds  and  mortgages  by  delivery. 

196.  The  equities  to  which  the  pledgee  is  not  subject. 

197.  The  pledgee's  equities,  as  against  fraudulent  releases. 

198.  The  pledgee's  rights,  in  cases  of  fraud,  misappropriation,  etc. 

199.  localization  of  the  securities  by  pledgee. 

200.  Pledger's  rights  upon  payment  of  debt. 

§  194.  THE  USE  OF  BONDS  AND  MORTGAGES  AS  COL- 
LATERAL SECURITY. — The  use  of  bonds  and  mortgages,  as 
collateral  security  for  other  obligations,  is  general  in  the 
states  where  this  form  of  security  is  adopted.  The  pledgee, 
receiving  the  same  in  good  faith  for  a  valuable  considera- 

o  o 

tion  properly  assigned,  is  vested  with  the  legal  title  to  the 
bond  and  mortgage,  and  entitled  to  enforce  the  mortgage 
security  in  equity  with  the  same  rights  as  a  purchaser  for 
value,  in  good  faith,  and  is  also  subject  to  the  like  equities. 
Such  a  non-negotiable  bond,  as  the  evidence  of  a  debt  or 
obligation,  and  the  mortgage  given  as  collateral  security  for 
its  payment,  are  the  subject  of  pledge.8  The  mortgage  se- 

1  Trenton 'Banking  Co.  v.  Wood-  parties  receiving  subsequent  as- 

ruff,  2  N.  Y.  Eq.  125;  Lilly  v.  Quick,  signments  of  the  collateral  security. 

Ib.  97;  Miller  v.  Wack,  1  Ib.  214.  Ibid. 

*  Hollis  v.  Insurance  Co.,  12Phila.  *  Campbell  ».  Parker,  9  Bosvv.323. 
821.  Aud  the  same  rule  applies  to 


THE   PLEDGE  THEREOF.  251 

curity  creating  a  specific  lien  on  the  land,  the  assignment 
carries  the  legal  estate  to  the  pledgees,  and  is  governed  by 
rules  generally  applicable  to  mortgages  of  a  legal  or  equita- 
ble interest  in  real  property.1  A  bond  and  mortgage 
transferred  by  an  assignment  absolute  in  terms,  but  in  fact 
as  collateral  security  for  a  promissory  note  made  by  the 
assignor,  by  the  terms  of  which  the  assignor  is  given 
authority  to  sell  the  collateral  securities  upon  default  in 
payment  of  the  note,  is  a  pledge  and  not  a  mortgage  or 
sale  of  such  collateral  securities.*  The  pledgor  remains  the 
general  owner  of  the  collateral  where  the  title  has  not  been 
passed,  the  pledgee  holding  a  special  property  therein  as 
security  for  the  advances  made.8 

§  195.  THE  PLEDGE  or  BONDS  AND  MORTGAGES  BY  DE- 
LIVERY.— A  bond  as  a  non-negotiable  chose  in  action,  to- 
gether Avith  the  mortgage  given  to  secure  its  i  ayment,  may 
be  assigned  as  collateral  security  by.  a  mere  delivery 
thereof.4  Such  collateral  securities  may  be  held  by  the 
pledgee  under  a  verbal  agreement,  as  security  for  the  pay- 
ment of  a  claim  of  a  third  person  as  for  his  own.5  The  sat- 
isfaction of  the  claim  of  one  creditor  by  the  pledgor  is  with- 
out effect  upon  the  right  to  retain  possession  of  the  collaterals 
by  the  other,  or  his  enforcement  of  the  mortgage  security, 
upon  default.6  The  benefit  of  such  securities  may  follow  by 
implication  to  several  creditors,  as  where  certain  bonds  and 
mortgages  were  assigned  in  trust  as  collateral  security  for 
the  payment  of  sterling  bonds  issued  by  a  corporation,  the 
holders  for  value  of  the  bonds,  having  acquired  an  imme- 

1  Clark  v.  Henry,    2  Cow.    324;  Wilson  ®.  Troup,  3  Cow.  231 ;  Jack- 
Carr  v.  Carr,  52  N.  Y.  251;    Slee  v.  son  a.  Willard,  4  Johns. 41  ;Runyaii0. 
Manhattan   Co  ,  1  Paige  Ch.  48,  50;  Mesereau,    11   II).   534;    Prescott  v. 
Rice  v.  Dillingham,  73  Me.  59.  Hull,  17  Ib.  292. 

2  Campbell  v.  Parker,  9  Bosw.  322.          6  Champney  v.   Coope,  32  N.  Y. 
8  O'Dougkertyfl. Remington  Paper      543;  llarbeck  «.  Vanderbilt,  20  Ib 

Co .,  81  N.  Y.  496.  395;  Hubbell  «.  Blakeslee,  71  Ib.  6<J. 

4  Kamena  v.  Huelbig,  23  N.  J.  Eq.          *  Ibid.;  Kellogg  v.  Ames,  41  N.  Y. 
78;   Gal  way  t>.  Fullcrton,  17Ib.389;      259. 


252  BONDS   AND  MORTGAGES. 

diate  beneficial  interest  in  the  collateral  securities,  became  in 
effect  the  assignees  and  purchasers  for  value  of  every  bond 
and  mortgage  embraced  in  the  trust  deed.1  Where,  however, 
a  bond  and  mortgage  are  executed  for  the  purpose  of  rais- 
ing money  for  the  mortgagor,  and  there  is  no  delivery  to  or 
consideration  paid  therefor  by  the  mortgagee,  such  securi- 
ties have  no  vitality  until  assignment  and  delivery,  and  even 
in  the  hands  of  an  assignee  for  value  without  notice,  the 
transaction  is  not  given  a  retroactive  operation  to  the  time 
of  the  execution  and  record  of  such  securities,  so  as  to  cut 
out  equities  arising  in  the  interval  between  such  time  and 
the  assignment  in  fact.* 

§  196.  THE  EQUITIES  TO  WHICH  THE  PLEDGEE  is  NOT 
SUBJECT. — The  pledgee  for  value  of  a  non-negotiable  bond, 
secured  by  mortgage,  without  notice  of  antecedent 
equities,  is  protected  as  against  secret  equities.  Where 
a  bond  and  mortgage  were  executed  by  the  wife  of 
one  partner  to  the  other  partner  for  the  purpose  of  raising 
part  of  the  capital  of  the  partnership,  and  were  assigned  as 
collateral  security  to  an  indorser  of  an  accommodation  note, 
upon  which  the  desired  money  was  raised,  the  latter,  having 
subsequently  paid  the  note,  was  entitled  to  foreclose  the 
mortgage  security,  free  frcm  the  secret  equity  alleged  be- 
tween the  parties  thereto  that  the  mortgage  should  be  paid 
from  the  profits  of  the  business.8  Nor  will  the  fact  that  a 
bond  and  mortgage,  delivered  for  the  temporary  accommo- 
dation of  the  mortgagee,  by  reason  of  false  representations 
as  to  his  solvency  and  upon  his  agreement  to  use  them  as 
collateral  security  only,  were  assigned  absolutely  to  a  bona 
fide  assignee,  without  notice  of  the  secret  agreement,  be  any 
defense  against  such  assignee  in  an  action  to  foreclose.4 

In  order  to  provide  for  the  payment  of  three  bills  of  ex- 


1  Palmer  v.  Yates,  2  Sandf.  137.  4  Jacobson  v.  Dodd.  32  N.  J.  Eq. 

»  Schaeffer  ».  Reilly,  50  N.  Y.  61.        403;  Duncan  v.  Gilbert,  29  Ib.  521. 
«  Ferdon  t>.  Miller,  34  N.  J.  Eq.  10. 


THE  PLEDGE  THEREOF.  253 

change,  the  drawer  executed  a  bond  and  mortgage,  to  be 
sold  for  cash,  and  the  proceeds  applied  in  payment  of  the 
bills.  The  mortgagee  (the  acceptor)  without  the  consent 
of  the  mortgagor  or  of  the  holders  of  the  bills,  pledged  the 
bond  and  mortgage  as  collateral  security  to  a  bank  for  the 
payment  of  any  and  all  sums  of  money  which  were  then  or 
might  be  thereafter  due  by  him,  the  bank  having  no  notice 
of  the  condition  upon  which  the  mortgage  was  executed. 
The  pledgee  subsequently  purchased  the  securities  abso- 
lutely, the  mortgagee  giving  credit  to  the  mortgagor  upon 
an  account  between  them  for  the  amount  so  realized.  The 
bills  of  exchange  having  been  negotiated,  the  holders  there- 
of sought  to  restrain  the  bank  from  selling  the  land,  but 
claiming  under  the  mortgage  they  were  not  allowed  to  re- 
pudiate its  form,  nor  could  they  avoid  the  legal  conse- 
quences resulting  therefrom,  and  as  the  mortgage  contained 
no  reference  to  the  condition  upon  which  they  relied,  they 
were  estopped  to  dispute  the  bank's  title.  A  transfer  of  a 
mortgage  by  one  having  an  apparently  unrestricted  power 
of  disposition  thereof  to  an  innocent  person  advancing  value, 
conveys  it  free  from  any  claims  of  secret  cestuis  que  trust.1 
The  rule  is  enforced  relative  to  collateral  agreements  of 
which  a  pledgee  has  no  notice,  where  the  bond  and  mort- 
gage are  delivered  with  a  declaration  of  "  no  defense."2 

§  197.  THE  PLEDGEE'S  EQUITIES,  AS  AGAINST  FRAUDU- 
LENT RELEASES. — Where  the  holder  of  a  bond  and  mort- 
gage, having  assigned  the  securities  to  a  third  person  as 
collateral  for  a  valuable  advance  in  good  faith,  subsequent- 
ly received  from  the  mortgagor  a  conveyance  of  his  equity, 
and  executed  a  release  of  the  mortgage  securities,  the  land 
was  held  still  subject  to  the  equitable  claims  of  the  bona 
fide  pledgee  for  value.3  Such  release  of  mortgage  securi- 

1  First  National  Bank  v.'Corry,  22  «  Riggs  v.  Pursell,  89  N.  Y.  608. 

Ilun,  339;    Dillaye  v.   Commercial  *  Browu  v.  Blydenburgh,  7  N.  Y. 

Bank,  51  N.  B.  345;  Greene  v.  War-  141. 
wick,  64  Ib.  220. 


254  BONDS   AND   MORTGAGES. 

ties,  and  execution  of  a  conveyance  by  the  mortgagor,  with- 
out the  production  of  the  bond  and  mortgage,  is  of  itself 
suspicious  enough  to  put  the  mortgagor  upon  inquiry,  and 
if  unexplained,  to  render  him  chargeable  with  knowledge 
of  the  fraudulent  character  of  the  transaction.  His  liability 
upon  his  personal  obligation  still  remains  valid  and  enforci- 
ble.1  The  like  rule  applies  as  against  a  person  advancing 
money  on  a  bond  and  mortgage,  who  fails  to  require  the 
production  thereof.  By  his  neglect  he  becomes  chargeable 
with  notice  of  any  defect  in  the  title  of  his  assignor.* 

§  198.  THE  PLEDGEE'S  EIGHTS,  IN  CASES  OF  FRAUD, 
MISAPPROPRIATION,  ETC. — A  bond  and  mortgage  executed 
and  delivered,  without  consideration,  to  be  used  for  a  spe- 
cific purpose,  must  be  applied  exclusively  thereto.  Any 
other  disposition  of  it  is  a  fraudulent  misappropriation, 
against  which  the  mortgagor  is  entitled  to  relief  in  equity.' 
A  bond  and  mortgage  were  executed  as  collateral  security 
for  the  performance  of  a  contract,  which  was  subsequently 
canceled.  The  pledgee,  in  the  meantime,  fraudulently  as- 
signed the  bond  and  mortgage.  An  action  to  foreclose  the 
mortgage  was  brought  by  the  assignee,  but  he  was  not  al- 
lowed to  enforce  the  security,  the  pledgees  having  no  title 
thereto,  which  was  not  defeasible  by  cancellation  of  the 
contract,  and  could  not  convey  any  greater  title.4  Under 
the  restricted  rule  prevailing  in  certain  states,  the  pledgee 
or  sub-pledgee  of  a  bond  and  mortgage,  receiving  the  same 
as  collateral  security  for  an  antecedent  debt,  without  more, 
is  not  a  holder  for  value,  in  the  usual  course  of  business, 
nor  protected  from  equities  arising  subsequently  to  the  giv- 
ing of  a  certificate  of  "  no  defense  "  by  the  mortgagor.* 
The  pledgee  of  a  bond  and  mortgagee,  however,  is  not  re- 

1  Brown  v.  Blydenburg,  7  N.  Y.  355;  Phillips  v.  Thompson,  2  Johns. 

141.  Ch.  423. 

8  Kellogg    v.    Smith,    26   N.    Y.         4  Wanzcr  v.  Gary,  76  N.  Y.  526. 
20.  •  Ashton's  App.,   73  Pa.  St.  153; 

1  Andrews  «.  Torrey,  14  N.  J.  Eq.  McConuell  v.  Wenrich,  16  Ib.  365. 


THE    PLEDGE   THEEEOF.  255 

sponsible  for  any  misappropriation  of  the  money  loaned 
thereon,  where  the  transaction  of  pledge  lias  been  made 
with  an  agent,  entrusted  with  the  documents  of  title  and 
apparent  absolute  ownership  for  the  purpose  of  selling  the 
same  in  the  market.1 

The  sub-pledgee  of  bonds  and  mortgages,  although 
holding  the  same  for  value,  in  good  faith,  and  with- 
out notice,  is  subject  to  like  equities  as  the  pledgee,  and  in 
cases  of  fraudulent  pledge,  not  within  the  established  rules 
of  estoppel  in  pais,  can  acquire  no  greater  right  to  such 
securities  than  were  acquired  under  the  original  loan.  The 
leading  case  in  New  York  upon  the  question  of  the 
equities  to  which  assignees  for  value  of  bonds  and  mortgages 
are  subject,  arose  out  of  a  sub-pledge  of  such  securities. 
In  Bush  v.  Lathrop9  a  non-negotiable  bond  for  $1,400  was 
given,  secured  by  a  mortgage  conditioned  to  pay  the  bond. 
The  bond  and  mortgage  were  assigned  as  collateral  security 
for  a  negotiable  note  for  less  than  one-fifth  the  face  of 
the  bond,  the  assignment,  which  otherwise  was  absolute  in 
form,  reciting  the  amount  of  the  note  as  the  consideration 
thereof,  but  containing  a  covenant  on  the  part  of  the  mort- 
gagor that  the  whole  amount  named  in  the  bond,  and  in- 
terest, was  due.  Shortly  afterwards,  the  collateral  securities 
were  fraudulently  assigned  by  the  pledgee  for  a  considera- 
tion of  $1,475,  with  a  covenant  on  his  part  that  $1,400  and 
interest  was  due  thereon.  Subsequently  the  assignees  re- 
assigned the  securities  to  the  defendant  for  a  consideration 
of  $1,488,  paid  chiefly  in  money  and  the  residue  in  notes,  the 
transaction  being  bona  fide  and  without  notice.  The 
property  was  valued  at  $2,000.  The  administrator  of  the 
deceased  mortgagor  tendered  to  the  last  assignee  the 
amount  of  the  principal  note  and  interest  for  which  the  bond 
and  mortgage  were  pledged  in  the  first  instance,  and  upon 
refusal  to  re-deliver  the  security,  brought  an  action 

1  Wcstervelt  v.  Scott,  11  N.J  Eq.78.         »  Bush  v.  Lathrop,  22  N.  Y.  535. 


£3  BONDS  AND  MORTGAGES. 

therefor.  The  court  below  found  for  the  sub-pledgee,  but 
the  judgment  was  reversed  at  general  term,  and  the  Court 
of  Appeals  affirmed  the  latter  decision. 

§  199.  REALIZATION  OF  THE  SECURITIES  BY  PLEDGEE. 
— The  pledgee,  in  the  exercise  of  powers  granted  by  con- 
tract to  sell  or  collect  collaterals,  must  act  in  good  faith. 
Where  a  contract  of  pledge  provides  that  such  securities 
may  be  sold,  the  pledgor  should  make  previous  demand  of 
payment  of  the  original  debt.1  A  transfer  thereof  under 
such  power,  to  the  obligor  and  mortgagor,  or  to  a  person  in  his 
interest,  for  a  sum  sufficient  only  to  pay  the  principal  debt, 
but  grossly  inadequate  to  the  real  value  of  the  collateral 
securities,  the  mortgagor  or  person  in  his  interest  buying 
for  the  purpose  of  cancelling  the  same,  amounts  to  a  con- 
version, and  the  pledgee  may  be  sued  for  the  damages 
resulting  from  such  wrongful  sale.*  It  is  the  duty  of  the 
pledgee,  where  a  bond  and  mortgage  are  pledged  as  col- 
lateral security  to  secure  the  payment  of  a  promissory 
note  previously  given  to  the  plaintiff,  such  being  the 
express  condition  of  the  bond  to  produce  the  note  for  can- 
cellation at  the  time  judgment  is  entered  on  the  bond,  f cu- 
lt may  have  passed  into  the  hands  of  a  holder  for  value, 
without  notice.8  The  pledgee,  in  enforcing  the  mortgage 
security,  is  not  subject  to  a  defense  of  usury  in  the  princi- 
pal demand,  a  promissory  note,  for  which  the  bond  and 
mortgage  were  assigned  as  collateral  security.4  And  where 
a  mortgage  was  made  to  secure  a  loan,  and  other  collateral 
securities  are  given,  the  equity  of  a  subsequent  mortgagee 
of  part  of  the  same  property  to  require  such  securities  to  be 
marshalled  in  his  favor  will  not  follow  them  into  the  hands 
of  an  assignee  for  value,  without  notice.' 

§  200.  PLEDGOR'S  RIGHTS  UPON  PAYMENT  OP  DEBT. 
— Where  a  mortgagor  has  paid  to  a  pledgee  the  amount  of 

1  Campbell  v.  Parker,  9  Bosw.  322.         «  Stevens  v.  Reeves,  33  N.  J  .Eq. 

*  Ibid.  427." 

•  Matteson  v.  Matteson,  55  Wis.540.          •  Reilly  v.  Mayer,  12  N.  J.  Eq.  55. 


THE   PLEDGE   THEREOF.  257 

the  note  made  by  the  mortgagee,  to  secure  the  payment  of 
which  the  bond  and  mortgage  executed  by  such  mortgagor 
had  been  pledged,  and  received  the  same  and  the  collaterals, 
he  is  subrogated  as  against  a  subsequent  assignee  of  the  bond 
and  mortgage,  chargeable  with  notice  that  the  mortgagee, 
at  the  time  of  the  assignment,  had  not  possession  thereof, 
to  the  rights  of  the  payee  of  the  note,  and  is  allowed  to  set- 
off,  in  a  suit  in  equity  to  foreclose  by  the  assignee,  the  full 
amount  of  the  note  and  interest,  although  he  took  up  the 
same  for  less  than  its  face.  The  title  of  the  assignee  being 
subject  to  the  pledge,  it  was  immaterial  that  he  had  no  notice 
thereof,  by  record  or  otherwise ;  nor  was  the  title  of  the 
mortgagor  subsequently  redeeming  the  bond  and  mortgage, 
so  pledged,  affected  by  payment  of  the  indebtedness.1 
Where  a  pledgee,  holding  a  bond  and  mortgage  as  collat- 
eral security,  brought  suit  to  foreclose  the  security,  claiming 
only  the  amount  of  the  debt  and  obtained  a  decree  for  a  lien 
on  the  land  for  the  amount  due  find  for  a  sale,  and  the  pledgor 
paid  the  amount  due  and  then  brought  his  own  suit  in  equity 
to  foreclose,  for  the  full  amount  of  the  bond,  he  was  allowed 
to  recover,  the  former  decree  upon  the  special  title  of  the 
pledgee  not  operating  as  a  bar  to  the  suit  by  the  pledger  as 
the  general  owner  of  the  securities.9  An  equitable  mort- 
gage of  title  deeds  was  made  to  secure  a  loan  of  £3,000. 
The  pledgee  sub-pledged  the  mortgage  securities  for  a 
loan  to  himself  of  XI, 200.  The  sub-pledgee  failed  to  inform 
the  mortgagor,  and  subsequently,  upon  a  promise  of  the 
pledgee  to  substitute  other  equally  valuable  securities,  sur- 
rendered the  mortgage  securities  to  the  pledgee.  The  mort- 
gagor then  paid  his  loan  to  the  pledgee,  and  received  the 
deeds.  The  substituted  securities  proving  worthless,  the 
sub-pledgee  sought  to  enforce  his  claim  as  against  the  mort- 
gagor. The  want  of  notice  and  his  surrender  of  the  deeds 
were  sufficient  to  defeat  his  claim.8 

1  Kamena  v.  Huelbig,  23  N.  J.  Eq.  Co.  81  N.  Y.  496. 

98.  *  In  re  Lord  Southampton's  Est., 

*  O'Dougherty  ^.Remington  Paper  L.  R.  16  Cli.  D.  178. 
17 


PART    III. 
THE  PARTIES  TO  THE  INSTRUMENT. 

CHAPTER  XX. 

THE  CONTRACT  OF  THE  SURETY. 

§201.  The  parties  to  the  instrument. 

202.  The  contract  of  the  surety. 

203.  The  contract,  as  proved  by  parol,  or  by  terms  of  the  instrument. 

204.  The  general  liability  of  the  surety. 

205.  The  surety's  liability  on  invalid  loans,  or  forged  or  fraudulent  paper. 

206.  The  surety's  liability  ou  official  bonds. 

207.  The  liability  of  married  women  and  minors  as  sureties. 

208.  Obligations  of  sureties  for  married  women  and  minors. 

§  201.  THE  PARTIES  TO  THE  INSTRUMENT. — The  rights 
and  liabilities  of  parties  to  negotiable  instruments  are  gov- 
erned by  the  order  of  their  names  on  the  paper,  and  by 
their  relations  to  each  other,  and  the  holder  thereof. 
Where  the  payment  of  such  instruments  is  secured  by  the 
deposit  of  collateral  securities  held  by  either,  or  one  or 
more  of  the  parties  thereto,  as  is  frequently  the  case,  the 
rights  accruing  in  relation  to  such  collateral  securities  are 
governed  by  equitable  rules,  which  have  been  so  uniformly 
enforced  as  to  become  part  of  the  commercial  law  of  the 
country.  The  principal  relations  of  parties  to  the  instru- 
ments thus  created  are  those  of  the  holder  thereof,  the 
maker,  surety,  indorser,  and  guarantor,  and  drawer,  drawee 
and  acceptor,  and  payee  of  bills  of  exchange.  The  equita- 
ble principle  of  subrogation  to  collateral  securities  is  applied 

258 


THE  CONTRACT  OF  THE  SURETY.          259 

in  these  relations  ;  and  also  in  the  case  of  co-sureties,  the 
further  equitable  principle  of  contribution  as  to  collateral 
securities  from  the  common  principal,  as  founded  upon  prin- 
ciples of  natural  justice.  The  holder  of  the  bill  or  note,  or 
creditor,  or  the  surety  or  indorser  or  acceptor,  holding  col- 
lateral securities,  are  subject  in  respect  thereto,  to  the  lia- 
bilities of  pledgees.  The  same  rules  as  to  care  and  diligence 
in  the  preservation  and  collection  of  collateral  securities, 
and  the  results  of  fraud  and  bad  faith  in  connection  there- 
with, resulting  in  loss,  follow  as  in  the  cases  of  pledge  of 
like  collaterals.  Both  at  law  and  in  equity,  the  rights  of 
parties  to  the  instrument  to  the  benefit  of  collateral  securi- 
ties are  preserved  and  enforced. 

§  202.  THE  CONTRACT  or  SURETYSHIP. — Thecontract 
or  undertaking  of  a  surety  is  a  contract  to  be  answerable 
for  the  payment  of  some  debt,  or  the  performance  of  some 
act  or  duty,  in  case  of  the  failure  of  another  person,  who  is 
himself  primarily  responsible  for  the  payment  of  such  debt, 
or  the  performance  of  the  act  or  duty.1  Such  contracts  may 
be  arranged  in  three  divisions  :  1,  those  in  which  there  is 
an  agreement  to  constitute,  for  a  particular  purpose,  the  re- 
lation of  principal  and  surety,  to  which  agreement  the 
creditor  thereby  secured  is  a  party2;  2,  those  in  which  there 
is  a  similar  agreement  between  the  principal  and  surety 
only,  to  which  the  creditor  is  a  stranger;  but  in  which  the 
creditor,  having  notice  of  such  relations  between  the  parties, 
will  not  be  at  liberty  to  do  anything  to  the  prejudice  of  the 
rights  of  the  surety,  or  to  refuse  (^when  all  his  own  just 
claims  are  satisfied)  to  give  effect  to  them  8;  and  3,  those  in 
which,  without  any  such  contract  of  suretyship,  there  is  a 

1  Addison  on  Cont.  555.  Pearl  v.  Deacon,  24  Beav.  186;  s.  c. 

»  Duncan    ®,    North    and    South  1  DeG.  &  J.  461. 
Wales  Bank,  L.  R  6  App.,  1,  11, 12          *  Davis  v.  Stainbank,  6   D.  M.  & 

(Earl    Cairns,     Lord     Chancellor);  G.  694;  ex  parte  Higgins.  2  Glyn  & 

Owenfl.  Hanan,  3  Mac.  &  G.  378;  J.  93;  Liquidators  v.  Liquidators,  L. 

Newton  v.  Cliorlton,   10  Hare,  646;  R  7  H.  L.  348. 


260  THE  PARTIES   TO  THE   INSTRUMENT. 

primary  and  a  secondary  liability  of  two  persons  for  one  and 
the  same  debt,  the  debt  being,  as  between  the  two,  that  of 
one  of  those  persons  only,  and  not  equally  of  both,  so  that 
the  other,  if  he  should  be  compelled  to  pay  it,  would  be 
entitled  to  reimbursement  from  the  person  by  whom  (as  be- 
tween the  two)  it  ought  to  have  been  paid.1 

§  203.  THE  CONTRACT,  AS  PROVED  BY  PAROL,  OR  BY 
TERMS  OF  THE  INSTRUMENT. — The  contract  of  suretyship  be- 
tween the  principal  and  surety  is  an  independent  and  col- 
lateral undertaking  from  that  of  the  principal  debt, 
although  its  terms  may  in  part  be  inferred  from  the  in- 
strument upon  which  the  surety  is  bound.  Proof  of  the 
fact  of  suretyship  by  parol  evidence  is  permitted  as  not 
coming  within  the  objection  that  it  tends  to  vary  a  written 
instrument.  Evidence  of  such  fact  is  received,  although 
upon  the  face  of  the  instrument  the  parties  appear  as  joint 
debtors.9  Such  proof  is  without  effect,  however,  as  to  the 

1  Tindal  v.  Brown,  1  Tcnn.  R 170;  Court  of  Appeals  (Finch,  J.)  say: 

s.  c.  2  Ib.  186;  ex  parte  Younge,  3  ''This  is  not  a  rule  which  in  any 

Y.  &  B.  40;  Clark  v.  Devlin,  3  B.  &  manner  assumes  to  alter  or  modify 

P.  366.  the  original  contract  or  the  com- 

»  Ward  v.  Stout,  32111.  309;  Barry  mon  liability.  That  remains  as 

r>.  Ransom,  12  N.  Y.  462;  Hubbard  an  unchanged  fact,  and  may  be 

«.  Gurney,  64  Ib.  457;  Calvo  v.  enforced  as  freely  and  perfectly 

Davies,  78  Ib.  216;  Palmer  v.  Purdy,  as  ever  against  all  the  debtors. 

83  Ib.  144;  Graves  v.  Johnson,  48  The  change  effected  is  that,  as 

Conn.  160;  McKee  v.  Hamilton,  33  between  themselves,  one  becomes 

Ohio  St.  7;  Wharton  v.  Woodburn,  a  surety  for  the  rest,  because  of 

4  Dev.  &  B.  507.  Contra:  Yates  v.  a  valid  agreement  by  which  they 

Donaldson,  5  Md.  401 ;  Walker  v.  become  primarily  liable  for  the 

Bank  of  Montgomery,  12  S.  &  R.  debt,  and  bound  to  pay  in  exon- 

382;  Lewis  v.  Hinchman,  2  Pa.  St.  eration  of  their  associate;  and 

418.  Duncan  v.  N.  &  S.  W.  Ry.  Co.,  this  fact  being  fairly  and  fully 

L.  R.  6  App.  1;  Liquidators  t>.  same,  brought  to  the  knowledge  of  the 

L.  R.  7  H.  L.  348;  Davies  v.  Slain-  creditor,  he  is  bound  to  respect  the 

bank,  6  D.  M.  &  G.  694;  Dcering  v.  rights  of  the  debtor  who  has  become 

Winchelsea,  2  B.  &  P.  270;  ex  parte  a  surety  and  acquired  the  right  to 

Hippins,  2  Glynn  &  J.  93;  Sterling  be  protected  as  such.  When,  there- 

v.  Forrester,  3  Bligh,  575.  In  Palmer  fore,  by  the  agreement  of  the  debtors 

t>.  Purdy,  supra,  the  New  York  among  themselves,  it  is  sought  to 


THE  CONTRACT  OF  THE  SURETY.         2G1 

principal  contract  entered  into,  but  operates,  when  knowl- 
edge of  it  is  chargeable  to  the  creditor,  to  prevent  him  from 
changing  the  contract  in  any  essential  particular,  or  from 
making  a  different  agreement  with  the  principal  debtor, 
without  the  knowledge  and  consent  of  the  surety,  or  from 
releasing  any  collateral  security  held  for  the  payment  of 
the  debt.  Such  knowledge  also  imposes  the  duty 
of  enforcing  the  contract,  as  against  the  principal, 
when  matured,  upon  request  of  the  surety.'  Although 
as  to  such  principal  contract,  the  mere  knowledge 
of  the  holders  of  a  bill  or  note  that  the  parties 
thereto  stand  in  the  relation  of  principal  and  surety,  is  not 
of  itself  sufficient  to  show  that  the  creditor  consented  to 
deal  with  them  in  such  capacities,  where  the  note  is 
executed  and  delivered  by  the  sureties  apparently  as  princi- 
pals.* Parol  evidence  is  admitted  both  in  equity  and  at  law 
to  establish  the  true  relations  of  parties  to  such  instruments.8 
The  addition,  by  one  of  the  makers  of  negotiable  paper 
of  the  word  "  surety,"  to  his  signature,  charges  the  holder 
thereof  with  notice  of  the  relationship.4  Such  addition  to  a 
signature  raises  the  presumption  that  the  bill  or  note  is 
given  for  value  by  the  other  makers,  and  that  they  are  the 
principal  debtors.* 

invest     one     or     more    of     them  157);    Reynolds  v.  Tapp,  5  Wend, 

with    new    equitable    rights    out-  501. 

side  of   the  original     contract    by  *  Xemicewicz  v.   Gahn,    3  Paige, 

notice  to  the  creditor  of  tie  later  614;  Barry  v.  Rauson,  12  N.  Y.  462; 

arrangement,    such  notice  must  be  Hubbard  v.  Gtirm-y,    64    Ib.   467; 

be  deiinite  and  distinct,  and  so  given  Davies  v.  Barrington,  30  N.  H.  517; 

as  to  fully  apprize  the  creditor  of  the  Graf  ton   Bank  ».   Kent,  4  Ib.  221  ; 

new  agreement  in  fact  made,  and  Mariners'  Bank  «.  Abbott,  28  Me. 

the  changed  attitude  of  the  debtor  280;   Wilson  v.  Green,  25  Vt.  450; 

claiming  the  rights  of  a  surety."  Branch   Bank  v.  James,  9  Ala.  949; 

'Hubbard    v.  Gurney,   64  N.  Y.  Hott  v.  Bodey,  18  Pa.  St.  207;  Core 

469  ;  Harris  v.  Brooks  (Shaw,  C.  J.)  v.  Wilson,  40  Ind.  204. 

21  Pick.  195 ;  Goodman  v.  Litaker,  4  Hunt  ».  Adams,  5    Mass.    358; 

84  N.  C.  8;  Bank  v.  Hoge,  6  Ohio,  Robinson    v.   Lyle,    10    Barb.   512; 

17;  Wythes  v.  Labouchere,  3  DeG.  Rogers  v.  Tapp,  supra. 

&  J.  593.  8  Farmers's  Nat.  Bank  v.  Stover, 

2  Rogers  v.  Tapp,  57  Tex.  (13  Rep.  60  Cal.  389. 


262 


THE  PARTIES  TO  THE  INSTRUMENT. 


§  204.  THE  GENERAL  LIABILITY  OF  THE  SURETY. — The 
measure  of  liability  of  a  surety  is  fixed  by  the  rerras  of  the 
instrument  which  he  has  signed.  His  undertaking  is  not 
to  be  enlarged  or  varied  by  judicial  construction,  but  con- 
strued most  strictly  and  favorably  for  his  interests.1  In 
case  of  doubt  as  to  his  liability,  it  is  generally,  if  not  uni- 
versally resolved  in  his  favor.*  It  is  only  to  the  extent, 
and  in  the  manner,  and  under  the  circumstances  pointed  out 
in  his  obligation,  that  the  surety  is  bound.  Nor  is  it  suffi- 
cient that  he  may  sustain  no  injury  by  a  change  in  the 
contract,  or  that  it  may  even  be  for  his  benefit.  The  surety 
has  a  right  to  stand  upon  the  very  terms  of  the  contract ; 
and  if  he  does  not  assent  to  any  variation  of  it,  and  a  varia- 
tion is  made,  it  is  fatal.8  Where  the  contract  of  surety- 
ship is  for  a  certain  sum  only,  the  surety  is  only  liable  to 
the  limit  agreed  upon.  In  such  cases,  if  the  debt  or  de- 
falcation amounts  to  a  sum  larger  than  that  named  in  the 
contract,  the  surety  is  only  liable  to  the  amount  named  in 
his  bond;  if  the  debt  or  defalcation  be  less,  then  to  the  sura 
only.4 


1  United  States  v.  Boyd,  15  Pet. 
187;  Mix  v.  Singleton,  86  111.  194; 
People  v.  Tomkins,  74  Ib.  482;  My- 
ers  v.  National  Bank,  78  Ib.  257; 
Cooper  v.  People,  85  Ib.  417;  Philips 
0.  Singer  Manuf.  Co,  88  111.  205; 
Winston  v.  State,  73  Ind.  175;  Home 
Savings  Bank  v.  Traube,  75  Mo.  199; 
Morgan  v.  Martien,  32  Ib.  438;  Orrick 
v.  Vahey,  49  Ib.  431 ;  St.  Louis,  v. 
Sickles,  52  Ib.  122;  New  London 
County  Bank  v.  Mitchell,  15  Conn. 
219;  Ludlow  v.  Simond,  2  Games' 
Cas.  1;  Crist  v.  Burliugame,  62 
Barb.  351;  McClusky  v.  Cromwell, 
11  N.Y.  593;  Ward  v.  Slahl,  81  Ib. 
406;  Gates  «.  McKee,  13  Ib.  232; 
Rochester  City  Bank  v.  El  wood, 
21  Ib.  88;  National  Mechanics' 
Banking  Corporation  v.  Coukling, 


90  N.  Y.  116;  Jennery  v.  Olmstead, 
90  N.  Y.  363;  Paw  Paw  v.  Eggles- 
ton,  25  Mich.  36;  Johnston  v.  Kim- 
ball,  39  Ib.  137;  Detroit  Savings 
Bank  v.  Ziegler,  49  Mich.  457  (14 
Rep.  658);  State  v.  Cutting,  2  Ohio  St. 
1;  Liverpool  Water  Co.  ®.  Atkinson, 
6  East,  597 ;  Pearsall  v.  Suinmersett, 
4  Taunt.  593;  Pybus  v.  Gibbs,  6  El. 
&  Bl.  903  ;  London  Ass.  Co.  v.  Bold, 
6  Q.  B.514;  Hassell  v.  Long,  2  M.  & 
S.  370  ;  Heppin  v.  Cooper,  2  B.  &  A. 
431. 

9  Dcdham  Bank  v.  Chickering,  4 
Pick.  314 ;  Still  v.  Vance,  62  111.  52. 

*  Miller  v.  Stewart,  9  Wheat.  681, 
703  (Story,  Jus.) 

*  Ex  parte  Snowden,  L.  R.  17  Ch. 
D.  44,  47. 


THE  CONTRACT  OF  THE  SURETY.         263 

§205.  THE  SURETY'S  LIABILITY  ox  INVALID  LOANS,  OR 
FORGED  OR  FRAUDULENT  PAPER. — Where  a  bona  fide  ad- 
vance has  been  obtained  upon  a  negotiable  instrument, 
signed  by  parties  as  principal  and  sureties,  from  a  corpora- 
tion without  authority  to  loan  money  for  the  purpose  desired, 
it  is  no  defense  to  a  surety  bound  upon  such  obligation  that 
the  act  of  loan  was  beyond  the  authority  of  the  corporation, 
where  the  money  has  actually  been  received.  The  equities, 
as  between  the  parties,  are  entirely  with  the  corporation.1 
Where  directors  of  a  railroad  company  became  sureties  upon 
contracts  of  the  company  which  were  ultra  vires,  so  that  no 
recovery  could  be  had  as  against  the  company,  the  liability  of 
the  sureties  thereon  was  enforced,  their  contract  being  inde- 
pendent and  collateral,  in  favor  of  innocent  third  parties 
who  had  advanced  money  thereon,  in  good  faith,  without 
notice.2  A  surety,  although  holding  collateral  security  from 
his  principal,  is  not  bound  upon  a  note,  which,  under  statu- 
tory enactments,  is  void.3  Where  a  surety  executes  a  bond 
in  the  belief  that  the  names  thereon  are  genuine,  and 
one  turns  out  to  be  a  forgery,  if  the  payee  or  holder 
lias  accepted  the  instrument  in  good  faith,  for  value, 
without  notice  of  the  forgery,  the  surety  is  bound.4  A 
surety  who  signs  a  promissory  note  upon  condition  that 
before  delivery,  an  additional  name  should  be  procured,  is 
bound  to  a  holder  for  value,  before  maturity,  taking  the 
same  without  notice  of  the  condition.5  The  liability  of 
a  surety  was  enforced,  where  a  promissory  note,  in  the 

1  In  re  Coltman,  L.  R.  19  Ck.  D.  Society  v.  Cordwell,  Ib.  555  ;  Stoner 

64,  71 ;  Jones  v.  National   Building  ®.  Milliken,  85  111.  218,    overruling 

Ass.,  94  Pa   St.  215.  Seeley  v.  People,  27  Ib.  173  ;  City  of 

*  Yorkshire  Ry.  Co.  D.  Maclure,  L.  Chicago  v.  Gage,  95  111.  593 ;  Stern  v. 
R.  19  Ch.  D.  478  ;   German  Mining  People,  102  Ib.  540 ;  State  v.  Baker, 
Co.'s  Case,  4  D.  M.  &  G.  19;  Cham-  64  Mo.  167. 

bers  «.  Manchester  etc.  Ry.  Co.,  5  B.  *  Clarke  v.  Bryce,  64    Geo.  486; 

&  S.  588,  612.  Brown  v.  Kent  County,  42  Mich.  501; 

•  Nourse  v.  Pope,  13  All.  87.  Washington    Probate   Court  v.   St. 
4  Helms    v.   Wayne    Agricultural  Clair,  52  Vt.  24. 

Society,  73    lad.   325;  Wayne  etc. 


264  THE   PARTIES  TO  THE  INSTRUMENT. 

terms  "  I  promise  to  pay  to  the  order  of  myself,"  was  signed 
by  two  persons,  and  placed  by  one  as  accommodation  paper 
in  the  hands  of  the  other,  and  was  transferred  by  the  holder, 
for  value,  in  violation  of  the  agreement  between  the  parties.1 

§  206.  THE  SURETY'S  LIABILITY  ON  OFFICIAL  BONDS. — 
The  liability  of  sureties  upon  official  bonds  is  strictly  con- 
strued, and  does  not  extend  beyond  the  letter  of  the  con- 
tract. Their  obligation  is  regarded  as  strictissimi  juris,  and 
nothing  can  be  added  thereto  by  way  of  presumption  or 
construction.  The  sureties  in  such  cases  are  bound  to  a 
certain  extent  only ;  and  any  substantial  change  in  the 
office  of  the  principal,  without  the  sureties'  consent,  dis- 
charges them  from  liability.  The  general  language  used  in 
a  contract  of  suretyship,  following  a  recital  of  the  particular 
office  which  the  principal  is  to  fill,  is  generally  restricted  by 
the  particular  words  of  the  recital.9  The  liability  of  sureties 
was  not  enforced  where  a  bond  was  given  for  a  bookkeeper, 
who  was  subsequently  promoted  to  the  position  of  teller, 
and  as  such  officer  embezzled  money  coming  into  his  hands8 
nor  where  an  assistant  clerk  had  been  promoted  to  book- 
keeper,4 nor  where  the  change  was  from  actuary  to  book- 
keeper and  clerk,*  nor  where  a  clerk  of  a  court  was  appointed 
receiver  of  a  trust  fund,  under  an  order  of  court,  and  mis- 
appropriated the  money  received  to  his  own  use.6 

But  the  rule  stated  is  not  applied  in  cases  where  the 

1  First  Nat.  Bank  v.  Fowler,   36  116  ;  McCluskey  v.  Cromwell,  11  N. 

Ohio  St.  524.  Y.  593  ;  Weonston  v.  State,  73  Ind. 

*  Home   Savings  Bank  v.  Traube,  175. 

75  Mo.  199;  State  v.  Sandusky,  46  *  National  Meek.  Banking  Associ- 
Ib.  381 ;  State  v.  Cutting,  2  Ohio,  1  ;  ation  v.  Conkling.  90  N.  Y.  116. 
Detroit    Savings    Bank    ».  Zieglcr,  4  Manufacturers'  Bank  v.  Dicker- 
supra  ;  Paw  Paw  v.  Eggleston,   25  son,  44  N.  J.  L.  449. 
Mich.  36,  40;    Detroit®.   Weber.  29  «  Jennery  v.  Olmslead,  90N.Y.363. 
Ib.  24;  Johnston  <c.  Kimball,  39  Ib.  •  Rogers  v.  Odom.18  S.  C.  (15  Rep. 
1 ;  Tradesmen's  Bank  v.  Woodward,  607);  Hammer  v.  Kaufman,  39   111. 
Anthon  (N.  Y.)  300  ;  National  Mech.  87  ;  Waters  v.  Carroll,  9  Yerg.  102; 
Banking  Ass.  v.  Conkliug,  90  N.  Y.  State  v.  Blackinorc,  7  Heisk.  638. 


THE  CONTRACT  OF  THE  SURETY.          265 

principal  assumes  additional  duties  in  a  new  and  independ- 
ent office,  while  continuing  the  discharge  of  the  duties  of 
the  former  position,  and  the  default  occurs  in  the  discharge 
of  the  duties  of  the  latter.1  As  where  a  collector  of  certain 
rates  was  also  appointed  collector  of  other  independent  rates, 
such  appointment  formed  no  defense  to  an  action  against  his 
sureties  for  a  default  in  the  first  office,  caused  by  a  defalca- 
tion.* Nor  is  the  liability  of  a  surety  for  a  bookkeeper  in  a 
bank,  who  also  acted  as  teller,  affected  by  the  additional 
employment,  unless  the  errors  were  connected  with  the 
duties  of  teller,  or  caused  by  his  employment  as  such.3  And 
the  same  rule  was  applied  in  the  case  of  sureties  for  a  teller, 
afterwards  appointed  bookkeeper.4  The  surety's  liability 
is  not  affected,  where  the  additional  employment  is  only 
temporary.  A  receiving  teller,  thus  assisting  a  general  teller, 
embezzled  moneys  coming  into  his  possession  as  such  assist- 
ant teller.  His  surety's  liability  was  unaffected  by  the 
merely  temporary  employment.8 

§  207.  THE  LIABILITY  or  MARRIED  WOMEN  AND  MINORS 
AS  SURETIES. — Under  the  common  law,  a  married  woman 
could  not  bind  her  estate  as  surety;  but  this  disability  has 
been  generally  removed.  She  has  usually  as  to  her  separate 
property  the  powers  of  a  femme  sole,6  and  may  incur 

1  Skillett  0.  Fletcher,  L.  R.  2  «  Pelzer  v.  Campbell,  15  S.  C.  582  ; 

C.  P.  469;  United  States  v.  Kirk-  Mayo  v,  Hutchmson,  57  Me  547  ; 

patrick,  9  Wheat.  720;  People  v.  Derringfl.  Boyle,  8  Kan.  529  ;  Wicks 

Vilas.  36  N.  Y.  459 ;  Supervisors  v.  v.  Mitchell,  9  Ib.  88 ;  Major  v. 

Clarke,  25  Hun,  386;  Hatch  v.  At-  Holmes,  124  Mass.  108;  Kenworthy 

tleborough.  97  Mass.  533;  Common-  «.  Sawyer,  125  Ib.  28  ;  Gocdnow  v. 

wealth  v.  Holmes,  25  Gralt.  771.  Hill,  Ib.  588  ;  Williams  v.  Wimston, 

1  Skillett  v.  Fletcher,  supra.  35  Ohio  St.  296,  overruling  Levi  v. 

1  Home  Savings  Bank  v.  Traube,  Earl,  30  Ib.  147,  and  Rice  v.  Rail- 

76  Mo.  199 ;  Rochester  City  Bank  v.  road  Company,  32  Ib.  380.  The 

El  wood.  31  N.  Y.  88.  rule  in  Penn.  was  changed  by  the  act 

4  Batchelor  v.  National  Bank,  78  of  April  10,  1879,  P.  L.  16.  Wig-gin's 
Ky.  435.  App.  100  Pa.  St.  155  (15  C.  L.  N.  67); 

5  Detroit  Savings  Bank  v.  Ziegler,  Davis  «.  Statts,  43  Ind.  103  ;  Illinois 
Mich.,  supra.  Rev.  Stats.  1874,  c.  68,  p.  576. 


266  THE   PARTIES   TO   THE   INSTRUMENT. 

liability  as  a  surety  for  third  persons.  Her  obligations  in 
this  respect  are  enforced  in  law  and  equity,1  except  where 
the  obligation  is  shown  to  have  been  assumed  under  duress.' 
A  married  woman  is  entitled,  where  she  has  mortgaged  hex 
real  estate  to  secure  a  debt  of  her  husband,  to  the  benefit 
as  surety  of  the  equitable  principle  that  a  creditor  must  first 
exhaust  the  property  of  the  principal  debtor  before  resort- 
ing to  that  of  the  surety,  if  he  can  do  so  without  loss  01 
injury  to  himself.8 

Persons  under  age  can  not  "assume  the  liabilities  of 
suretyship,  and  such  contracts  are  held  to  be  void,  especially 
where  the  undertaking  of  the  minor  is  manifestly  against 
his  interest.4  Where  such  contracts,  however,  are  in  fact 
beneficial  to  the  minor,  they  may  be  ratified  b}^  some  dis- 
tinctive act  on  his  part,  if  there  be  a  clear  knowledge  of  the 
want  of  binding  effect  of  the  original  contract.8  A  note 
made  by  an  infant  may  form  a  good  consideration  for  an- 
other note  given  after  his  majority  in  renewal  of  tho 
same.6 

§  208.  OBLIGATIONS  OP  SURETIES  FOR  MARRIED  WO- 
MEN AND  MINORS. — In  states  where  the  rule  prevails  of  the 
disability  of  married  women  to  enter  into  contracts,  the  lia- 
bility of  third  persons  is  not  affected,  who  have  become  sure- 
ties for  performance  or  payment.  The  undertaking  of  such 
sureties,  being  a  separate  and  independent  contract,  is  not 
affected  or  rendered  void,  although  the  personal  engagement 

1  Woolsey  v.  Brown,  74  N.  Y.  82  ;  don,  11  Md.  46n ;  Allis  v.  Ware,  27 

Com.  Exchange  Nat.  Bank  v.  Bab-  Minn.  166;  Wilcox  v.  Todd,  64  Mo. 

cock,  42  Ib.  613;  Carpenter  v.  O'-  388. 

Dougherty,   50  Ib.  660;  Maxon   v.  *  Robinson  0.  Weeks,  56  Me.  102; 

Scott,  55  Ib.  247;  Manhattan  Nat.  Chandler®.  McKinney,  6  Mich.  217; 

Bank  v.  Thompson,  58  Ib.  80  ;  Third  Maples  v.  Wightman,  4  Conn.  376. 

Nat.  Bank  v.  Blake,  73  Ib.  260.  •  Owen  v.  Long,    112  Mass.  403; 

1  Loomis  c.Ruck,  56  N.  Y.  462.  Hinely  v.  Margaritz,  3  Pa.  St.  428; 

*  Niemcewicz  v.  Qahn,  3  Paige,  Fetrow  v.  Wiseman,  40  Ind.  148. 

614 ;  s.  c.  11  Wend.  312 ;  Wright  v.  •  Baldwin  v.  Vundusen,  37  N.  Y. 

Austin,  56  Barb.  13 ;  John  v.  Rear-  487. 


THE  CONTRACT  OF  THE  SURETY.          267 

of  the  principal  be  worthless.1  A  building  association  made  a 
loan  to  a  married  woman,  upon  a  mortgage  of  her  separate 
estate,  requiring  her  husband  also  to  execute  a  bond  for  the 
amount  of  the  loan.  Although  the  contract  could  not  be 
enforced  personally  against  the  woman,  an  action  upon  the 
bond  given  by  her  husband,  who  was  regarded  as  a  surety, 
was  supported,  although  he  received  none  of  the  considera- 
tion, the  contract  having  been  made  in  good  faith,  upon  a 
valuable  advance.8  The  receipt  of  a  note  from  a  married 
woman  by  a  sheriff,  is  not  a  discharge  of  her  surety,  where 
taken  as  a  favor  by  the  officer,  and  not  by  an  act  of  duress.1 
A  third  person,  who  has  fraudulently  procured  a  minor  to 
indorse  a  note  in  blank,  is  liable  for  the  amount  of  the 
same  when  in  the  hands  of  a  holder  for  value,  before  ma- 
turity, without  notice,  although  the  first  holder  was  charge- 
able with  notice  of  the  infirmity  of  the  indorsement.4 

1  "Weed    Sewing  Machine  Co.  v.  8  St.  Alban's  Bank  v.    Dillon,  30 

Maxwell,  63  Mo.  486;  State  v.  Wag-  Vt.  123. 

goner,  45  N.  J.  L.  (14  Rep.  467.)  *  Lobdell  v.   Baker,   3  Met.  469; 

»  Wiggins'  App.   100  Pa.  St.  (15  Thrall  v.  Newell,  19  Vt.  202;  Polliill 

C.  L.  N.  69.)  9.  Walter,  3  B.  &  Ad.  114. 


268  THE  PARTIES  TO  THE  INSTRUMENT. 


CHAPTER  XXI. 

THE  SURETY'S  RIGHT  TO  COLLATERALS. 


§209.  The  creditor's  responsibility,  holding  collaterals. 

210.  The  creditor's  primary  resort  to  securities  of  principal. 

211.  Equitable  limitations  of  the  rule. 

212.  Subrogation  of  sureties  to  collateral  securities  of  creditor. 

213.  The  securities  to  which  surety  is  subrogated. 

214.  Equitable  conditions  of  subrogation  to  securities. 

215.  The  surety's  subrogation  to  the  debt  or  judgment. 

216.  The  surety's  right  of  subrogation,  when  defeated. 

217.  Subrogation  of  creditor  to  collateral  securities  of  surety. 

218.  The  subrogation  of  creditors,  as  against  pledgees. 

219.  Application  of  proceeds  from  collaterals. 

220.  The  creditor's  enforcement  of  the  principal  note. 

221.  The  recovery  of  creditor,  as  against  surety. 


§  209.  THE  CREDITOR'S  RESPONSIBILITIES,  HOLDING 
COLLATERALS. — The  relationship  of  creditor,  principal  debt- 
or, and  surety,  where  the  former  lias  received  from  the 
debtor  collateral  security  for  the  performance  of  the  princi- 
pal promise  in  addition  to  the  personal  liability  of  the  sure- 
ty, creates  a  limited  responsibility  on  the  part  of  the  creditor 
as  to  the  care  and  diligence  required  in  the  safe  keeping  and 
realization  thereof.  The  creditor,  chargeable  with  know- 
ledge that  one  or  more  of  the  parties  bound  upon  the  prin- 
cipal bill  or  note  are  sureties,  is  bound  to  act  in  good  faith 
in  his  dealings  with  such  collaterals,  if  he  would  enforce 
the  personal  liability  of  the  surety  upon  the  maker's  default. 
Such  securities  are  regarded  in  equity  as  given  as  much  for 
the  benefit  of  the  surety  as  for  the  creditor,  and  the  former's 
right  to  be  subrogated  thereto,  upon  payment  of  the  debt, 
upon  the  principal's  default,  is  unquestioned.  With  this 


SURETY'S  RIGHT  TO  COLLATERALS.  2G9 

beneficial  interest  in  the  collateral  securities,  the  surety  is 
entitled  to  be  discharged  pro  tanto,  if  the  creditor,  by  waste 
or  neglect  so  gross  as  to  amount  to  fraud,  or  unauthorized 
or  fraudulent  dealing  therewith,  impairs  or  destroys  their 
value.  The  creditor  stands  in  the  relation  as  to  such  col- 
laterals of  a  secondary  or  quasi-trustee ;  and  although  the 
receipt  thereof  in  no  way  limits  his  right,  upon  default,  to 
an  action  at  law  against  the  parties  bound  upon  the  princi- 
pal instrument,  yet  in  equity,  he  may  be  required,  where 
not  injurious  or  prejudicial  to  his  interests,  to  resort  thereto 
rather  than  to  the  personal  responsibility  of  the  surety.1 

§  210.  THE  CREDITOR'S  PRIMARY  RESORT  TO  SECURI- 
TIES or  PRINCIPAL. — Upon  equitable  principles,  the  burden 
of  the  debt  is  thrown  primarily  upon  the  estate  and  securi- 
ties of  the  principal  debtor,  and  such  estate  is  exhausted  in 
exoneration  of  that  of  the  surety.  The  equity  of  the  surety 
in  this  respect  is  preferred  as  against  creditors  holding  gen- 
eral liens  thereon,  and  is  enforced,  in  cases  where  not  injur- 
ious to  the  creditor,  although  process  has  been  issued 
against  the  surety.  Such  process  will  be  retained  until  the 
property  and  securities  of  the  principal  debtor  have  been 
applied  in  payment.*  Where  the  suret}'  has  placed  securi- 
ties with  those  of  principal  in  the  hands  of  the  creditor,  he 
is  entitled  to  require  the  securities  of  the  principal  first  ap- 
plied to  the  debt,  and  if  both  are  sold,  to  have  the  same  ap- 


1  Black  River  Bank  v.  Page,  44  N.  98  Pa.  St.  432;  Phares  v.  Barbour, 

Y.  453;  Wooten  v.   Buchanan,  49  49111.370,375. 

Miss.  386;  Allen  v.  Woodward,  125  s  Wilcox    v.  Todd,    64  Mo.  388; 

Mass.  400;    West    Boston   Savings  Wright  v.  Austin,  56  Barb.  13;  Ni- 

Bank  V.  Thompson,  124  Ib.  506,  514;  emcewicz  v.  Guhn,3  Paige,  614;  s.  c. 

Warner  v.  Beardsley,  8  Wend.  194;  on  appeal,  11   Wend.  312;  John  v. 

Bangs  ».  Story,  7  Hill,  250;  Schroep-  Reardon,   11  Md.   465;  Wooten  v. 

ptl  v.  Shaw,  3  N.  Y.  446;  Manning  Buchanan,  49  Miss.  386.    The  prin- 

?'.  Shotwell,  4  N.  J.  L.  584;  Hall  •».  ciple  was  applied  in  favor  of  an  in- 

Hoxey,  84  111.  618;  Priest  v.  Watson,  dorser  in  Union  Bank  v.  Laird,  2 

75  Mo.  315 ;  Clow  v.  Derby  Coal  Co.  Wheat.  390. 


270  THE  PARTIES   TO   THE  INSTRUMENT. 

plication  of  their  proceeds.1  A  surety  upon  a  note,  secured 
by  a  deed  of  trust  of  the  principal  maker,  is  entitled,  after 
its  maturity,  to  require  that  the  real  estate  security  of  the 
principal  should  be  first  exhausted  for  its  payment ;  and  the 
trustee,  in  the  absence  from  the  country  of  the  holder  of  the 
note,  may  properly  make  a  sale  of  the  property  upon  the  re- 
quest of  the  surety.  Such  surety  may  himself  bid  upon  the 
property  in  order  to  be  protected  from  liability.*  A  valid 
agreement  may  be  made  by  a  surety  with  a  creditor  that 
the  latter  shall  bring  a  bill  in  equity  against  the  principal 
debtor  to  collect  the  debt  from  securities  held  by  him,  or  on 
his  behalf,  although  the  surety  has  not  paid  the  debt.8  A 
judgment  having  been  entered  upon  default  in  the  payment 
of  notes  secured  by  mortgage,  an  appeal  was  taken  upon 
bond  with  surety.  Pending  appeal,  the  creditol'  sold  the 
property  covered  by  the  mortgage,  applying  the  proceeds 
thereof  to  the  payment  of  the  notes.  As  this  was  all  that 
the  surety  could  have  done  had  he  been  subrogated  to  such 
collateral  securities,  a  judgment  against  him  for  a  deficiency 
arising  at  such  sale  was  enforced.4 

§  211.  EQUITABLE  LIMITATIONS  OP  THE  RULE. — The 
creditor's  resort  primarily  to  the  collateral  securities  of  the 
principal  debtor  held  by  him,  is  subject  to  the  equitable 
rule  that  such  proceedings  will  be  equally  as  available  as 
an  action  at  law  against  the  surety,  and  would  as  fully 
indemnify  the  creditor,  subjecting  him  to  no  delay,  and  ex- 
posing him  to  no  loss.5  The  surety  may,  at  any  time  after 

1  Vartie  v.  Underwood,  18  Barb.  »  Booth  r>.  Wiley,  102  111.  41. 

561 ;  Strong  «.  Wooster,  6  Vt.  536.  *  Speiglemeyer    t>.     Crawford,    8 

The  same  principle  is  applied  be-  Paige,  254. 

tween  lien  creditors,    in  adjusting  *  Marchand  v.  Frellscn,  105  U.  S. 

their  claims  on  funds  in  Pennsylva-  423;  Wham  v.  Irvin,  27 La.  Ann.  706; 

nia.    Delaware  Canal    Co.  App.  38  Landry  v.  Vicker,  30  Ib.  1041. 

Pa.  St.  512;  McLellan's  App.  76  Ib.  •  Gary  v.  Cannon,  3  Ired.  Eq.  64; 

235;  Homing's  App.  90  Ib.  388;  Me-  Irick  v.  Black,   17  N.  J.   Eq.   189; 

Ilvain  t>.  Mutual  Ins.  Co.  93  Ib.  30;  Wright  v.  Austin,  56  Barb.  18;  Ster- 

Hyff's  App,  84  Ib.  40.  ling  v.  Forrester,  3  Bligh.  590. 


SURETY'S  RIGHT  TO  COLLATERALS.  271 

the  debt  becomes  due  and  payable  discharge  it  by  payment, 
and  thus  become  entitled  to  all  the  collateral  securities 
held  by  the  creditor.1  The  mere  receipt  of  securities  from 
the  principal  has  no  effect  upon  the  obligation  of  the  surety, 
and  is  no  defense  against  an  action  of  the  payee  against 
the  surety  upon  the  note  for  the  payment  of  which  the  se- 
curities were  pledged.9  Nor  is  such  a  defense  available  to  an 
indorser  of  a  promissory  note,  as  where  a  bank  discounting 
a  note  relied  upon  collateral  securities  of  the  principal,  de- 
posited with  the  creditor.  An  indorsee  for  value  of  the 
note  is  entitled  to  look  to  all  the  parties  thereto  for  pay- 
ment, irrespective  of  any  collateral  securities  held  by  any 
of  them.8  It  is  no  defense  to  an  action  at  law  for  a  surety 
on  a  promissory  note  to  show  that  the  bank  holding  the 
same,  after  maturity  received  deposits  from  the  principal 
largely  in  excess  of  the  amount  of  the  note.4  Nor  is  the 
liability  of  the  surety  affected  by  a  depreciation  in  the  value 
of  collateral  securities  in  the  interval  between  the  maturity 
of  the  debt  and  the  commencement  of  an  action  against 
the  surety.5 

§  212.  SUBROGATION  OP  SURETIES  TO  COLLATERAL 
SECURITIES  OF  CREDITOR. — The  surety  is  entitled,  upon 
payment,  to  be  subrogated  to  the  collateral  securities 
held  by  the  creditor  from  the  principal  debtor,  whether 
such  securities  were  received  at  the  time  the  contract  of 
suretyship  was  entered  into  or  subsequently,  or  without 
the  knowledge  of  the  surety.  This  right  of  the  surety  is 
one  not  founded  upon  contract,  but  is  supported  upon  prin- 

1  Jones  v.  Fincher,    15  Ind.  308;  *  West  Boston   Savings  Bank    v. 

Irick  v.  Freehold  Nat.  Bank  Co.  37  Thompson,  124  Mass.  506,  514. 

N.  J.  L.  307 ;  Schroeppel  v.  Shaw,  3  4  Steincr    v.    Erie  Dime    Savings 

N.  Y.  446;  and  after  payment  may  Bank,  98  Pa.  St.  591. 

file  a  bill  to  have  the  securities  ap-  B  Brick  v.  Freehold  Nat.  Bank  Co. 

plied  to  his  relief.    Houser  v.  King,  37  N.  J.  307,  Schroeppel  v.  Shaw.  3 

76  Va.  731.  N.  Y.  446. 

*  Allen  v.  Woodward,  125  Mass. 
400. 


272 


THE   PARTIES   TO   THE   INSTRUMENT. 


ciples  of  equity  and  natural  justice,  and  the  tendency  is  to 
enlarge  and  extend  its  application.1  The  right  is  applied 
in  favor  of  each  of  several  sureties  upon  payment*  and  is 
assignable  by  the  surety,  the  assignee  becoming  entitled  to 
the  equitable  rights  of  the  surety.8  The  right  of  subroga- 
tion however,  is  limited  to  the  indebtedness  of  the  principal 
to  the  surety  on  all  accounts  at  the  time  the  subrogation  is 
sought.  If  the  surety  is  indebted  to  the  principal,  though 
in  a  distinct  account,  to  an  amount  equal  to  what  he  has  paid 
for  his  principal,  he  has  no  right  of  subrogation.4  And  the 
right,  being  a  mere  equity,  is  denied  in  all  cases  where  its 
exercise  would  produce  injustice.6  But  where  the  principal 
himself  is  a  surety  upon  the  obligation  upon  which  the 


1  Knighton  v.  Curry,  62  Ala.  404; 
Smith  v.  Harrison,  33  Ib.  706;  Tal- 
bott  v.  Wilkins,  31  Ark.  411;  Jaques 
t>.  Fackney,  64  111.  87;  Bishop  «. 
O'Connor,  69  Ib.  431 ;  Richeson  «. 
Crawford,  94  Ib.  165;  Beaver  v. 
Slanker,  Ib.  175;  Jones  v.  Fincher, 
15  Ind.  308;  Zook  v.  Clemmer,  44  Ib. 
15;  Patterson  v.  Pope,  5  Dana,  243; 
Rice  v.  Downing,  12  B.  Mon.  45; 
Scott  v.  Featherston,  5  La.  Ann.  306; 
Magee  v.  Leggett,  48  Miss.  139 ;  Lee 
«.  Griffin.  31  Ib.  632;  Osborne  v. 
Noble,  46  Ib.  449;  Taylor  v.  Jeter, 
23  Mo.  244;  Berthold  v.  Berthold.  46 
Ib.  577;  Allison  v  Sutherlin,  50  Ib. 
274;  Easton  v.  Hasty,  6  Neb.  419; 
Smith  v.  McLeod,  3  Ired.  Eq.  390; 
Irick  v.  Black,  17  N.  J.  Eq.  189; 
Clason  v.  Morris,  10  Johns.  524 ; 
Martin  v.  Howard,  12  Hun.  16; 
Townsend  v.  Whitney,  15  Ib.  93; 
Hayes  v.  Ward,  4  Johns.  Ch.  130; 
Green  «.  Millbank,  3  Abb.  N.  Cas. 
138  ;  s.  c.  56  How.  382;  Fielding  t>. 
Waterhouse,  40  N.  Y.  Super.  Ct. 


424;  Mathews  v.  Aikin,  1  N.  Y.  595; 
Lewis  v.  Palmer,  28  Ib.  271;  Corey 
is.  Leonard.  56  N.  Y.  494 ;  Butler  v. 
Birkey.  13  Ohio  St.  514:  Cottrell's 
App.  23  Pa.  St.  294;  McTormrck  v. 
Irwin,  35  Ib.  Ill;  Mullcr  «.  Wad- 
lington,  5S.C.342;Harlan  v.  Sweney, 
1  Lea,  682;  Allen  v.  Henley,  2  Ib. 
141;  Horton  v.  Bond.  28  Gratt.  815; 
Dent  v.  Wait.  9  W.  Va.  41 ;  Lidder- 
dale  v.  Triggs,  12  Wheat.  594;  in  re 
Babcock,  3  Story,  393;  Hodgson  v. 
Shaw,  3  M.  &  K.  183 ;  Craythorne  v. 
Swinburne,  14  Ves.  159. 

*  Clapp  v.  Leb-mon  Bank,  46  Pa. 
St.  88;  Sears  v.  Lcforce,   17  Iowa, 
473;  Brown  t>.  Kay.   18  N.  H.  102; 
Paris  v.  Hulett,  26  Vt,  308;  Lane  v. 
Stacy,  8  Allen,  41,  a  case  of  joint 
indorse  rs. 

*  York  t>.  Limlis,  65  N.  C.  535;  El- 
wood  v.  Diefendorf,  5  Barb.  398. 

4Neff  v.  Miller,  8  Pa.  St.  347; 
Coates'  App.  7  W.  &  S.  99;  Bailey  t>. 
Broomfield,  20  Pa.  St.  41. 

*  Cassidy  v.  Keelcy,  13  Phila.  112. 


SURETY'S  RIGHT  TO  COLLATERALS.  273 

surety  borrows  the  money  with  which  to  pay  the  debt,  the 
right  of  subrogation  is  not  affected.1 

The  right  of  subrogation  of  the  surety  extends  to  the 
collateral  securities  received  by  the  creditor  from  the  prin- 
cipal debtor  subsequently  to  the  creation  of  the  relationship 
of  creditor,  principal  debtor,  and  surety.  The  securities 
thus  received  are,  like  those  received  at  the  inception 
of  the  contract,  in  the  nature  of  a  trust  or  quasi-trust  fund 
for  the  benefit  of  the  sureties  as  well  as  of  the  creditor. 
The  indemnity  resulting  from  the  possession  of  such  collat- 
eral securities  enures  to  the  relief  of  the  one  as  of  the  other. 
The  surety's  bargain  is,  that  the  securities  taken  by  the 
creditor  shall  be  transferred  to  him  if  and  when  he  is  called 
upon  to  make  payment,  and  it  is  the  duty  of  the  creditor  to 
keep  such  securities  intact,  whether  received  at  the  time  of 
the  suretyship,  or  subsequently.  Even  where  the  creditor 
has  burthened  such  securities  with  new  advances  to  the 
principal  debtor,  the  equities  of  the  surety  are  preferred.* 

§213.  THE  SECURITIES  TO  WHICFT  SURETY  is  SUBRO- 
GATED. — The  surety,  upon  payment  of  the  debt,  is  also  sub- 
rogated  in  equity  to  all  such  securities  of  the  creditor  as, 
under  technical  rules  of  law,  become  extinct  upon  such  pay- 
ment, as  well  as  to  such  independent  collateral  securities  as 
may  be  held  by  the  creditor.3  The  surety  is  entitled,  upon 
payment,  to  the  benefit  of  an  attachment  against  the  prin- 
cipal obtained  by  the  creditor,  and  the  levy  of  an  execution 

1  Owen's  App.  11  Weekly  Notes  6  App  1 ;  Pledge  v.  Buss,  Johns.  Ch. 

Cas.  488.  665,  668;  Williams  «.  Owen,  13  Sim. 

3  Hardin  c.  Eames,  4  Bradw.  153;  597;  Farcbrotlier  v.  Woodhouse,  23 

Phares  v.  Barbour,  49   111.370,375;  Beav.  18;  Newton  v.  Chorlton,  10 

Rogers  v.  Trustees,  46   111.  428;  Os-  Hare.  646. 

borne  v.  Noble,  46  Miss.  449 ;  Baker  8  Allison  v.  Sutlierlin,  50  Mo.  274; 
v.  Briggs,  8  Pick.  121  ;  Merchants'  Furnold'0.  Bank,  44  Ib.  336;  Lath- 
Banks.  Baker,  4  Met.  164;  Guild  v.  rop's  App.  1  Pa.  St.  512:  and  the 
Butler,  127  Mass.  386  ;  Forbes  v.  right  may  be  enforced  at  law.  Arnot 
Jackson,  L.  R.  19  Ch.  D.  615;  Dun-  v.  Woodburn,  35  Mo.  99.  Contra: 
can  v.  Bank,  L.  R  11  Ch.  D.  88;  s.c.  Bigelow  v.  Cassidy,  26  N.  J.  Eq.557. 
18 


274  THE  PARTIES  TO  THE  INSTRUMENT. 

thereon.  Such  attachment  is  a  security  within  the  rule.1 
And  to  the  lien  of  an  execution  ;*  and  to  a  replevin  bond  ;* 
but  not  to  a  distress  warrant.4  And  under  a  Pennsylvania 
statute  authorizing  a  stay  of  execution  for  a  year  upon  giv- 
ing security,  the  surety  for  the  original  debt,  upon  payment, 
is  entitled  to  the  remedy  of  the  creditor  upon  the  stay.5  A 
surety  is  entitled,  upon  the  same  terms,  to  the  benefit  of  a 
mortgage  or  other  charge,  held  by  the  creditor  as  collateral 
security,  and  to  the  proceeds  of  the  enforcement  of  the 
security,  when  it  has  been  converted  into  cash,  or  to  any 
surplus  remaining  after  discharging  prior  encumbrances.' 
The  special  liens  and  priorities  vested  in  the  government  of 
the  United  States  and  the  several  state  common  wealths  are, 
upon  equitable  principles,  preserved  for  the  benefit  of  sure- 
ties who  have  paid  judgments  or  other  obligations  of  their 
principals  to  the  federal  or  state  authorities.  The  surety's 
right  of  subrogation  thereto  is  undoubted.1  A  provision  in 
a  statute  giving  a  lien  to  a  state  upon  the  recording  of  an 
official  bond,  with  sureties,  until  the  conditions  thereof 
should  be  complied  with,  is  enforced  for  the  benefit  of  sure- 
ties paying  a  deficiency  of  such  official,  the  intention  of  the 


1  Brewer  v.  Franklin  Mills,  42  N.  «.  Barbour,  49  Ib.  870;  Jaques  v. 

H.  292;  Edgerly  «.  Emerson,  23  Ib.  Fackney,  64  Ib.87;  Beaver  ».Slankey, 

365.  94  Ib.  175;  Hayes  v.  Ward,  4  Johns. 

»  Watts  v.  Kinney,  3  Leigh,  272;  Ch  123;  Root  v.  Bancroft,  10  Met. 

Hunter  v.  Keller,  3  W.  &  S,  401.  48;  Hodgson  t>.  Shaw,  3  M.  &.  K. 

«  Glass  V.  Pullen,  6  Bush,  316.  190;  Copis  v.  Middleton,  1  Turn.  & 

*  Hall  9.  Hoxsey,  84  111.  618.  R.  224. 

•  Schnittzell's  App.  49  Pa.  St.  23;          *  United  States  v.  Herron,  20  Wall. 
Potts  v.  Nathans,  1   W.  &  S.  155;  251;  Hunter  v.  United  States,  5  Pet. 
Burns  v.  Bank,  1  P.  &  W.  395.  173;  s.  c.  5  Mason,  62;  United  States 

•Gerber  v.  Sharp,   72  Ind.  553;  ».  Preston,  4  Wash.  446;  Cochrane®. 

Fawcette  v.  Kennedy,  33  Ala.  261 ;  Cushing,  124  Mass.  219;   Smith  v. 

Osborne  *.   Noble,    46    Miss.    449;  Hodson,   50    Wis.  279;    Enders  v. 

Storms  v.  Storms,  3  Bush,  77 ;  Jones  Brine,  4  Rand.  438 ;  Dias  ».  Bouchard, 

«.  Fincher,   15  Ind.   308;  Lewis  v.  3  Edw.   485;   Gridcr   v.   Payne.  9 

Palmer,  28  N.  Y.  271;    City  Nat.  6ana,  188;  Regina  v.  Saltcr,  1  H.  & 

Bank.  ».  Dudgeon,  65111. 11;  Rogers  N.  274;  King  v.  Bennett,   Wight- 

«.  School  Trustees,  46  Ib.  428 ;  Phares  wick,  2,  6. 


SURETY'S  RIGHT  TO  COLLATERALS.  275 

Legislature  being  to  give  a  collateral  security  not  only  for 
the  benefit  of  the  state,  but  as  indemnity  to  the  sureties  in 
case  of  default.1 

§  214.  EQUITABLE  CONDITIONS  OF  SUBROGATION  TO 
SECURITIES. — An  essential  condition  of  the  right  of  a  surety 
to  subrogation  to  securities  held  by  the  creditor  from  the 
principal  debtor  is,  that  he  shall  first  pay  the  debt  upon 
which  he  is  bound.  Until  this  has  been  done,  the  surety 
has  no  equitable  right  to  the  securities,  and  is  not  entitled 
to  require  the  creditor  to  surrender  them  to  him.  In  no 
sense,  are  such  securities  his,  until  payment.  Nor  will  a 
satisfaction  and  discharge  of  a  part  of  the  debt  entitle  a 
surety  to  demand  such  collateral  securities,  as  the  right  of 
the  creditor  to  retain  possession  of  all  securities  until  fully 
paid,  is  preferred.*  Equity,  however,  will  afford  relief  to  a 
surety,  against  whom  a  judgment  has  been  entered  and  is 
being  pressed  by  execution,  even  before  payment  of  the 
debt,  upon  a  bill  against  the  creditor  and  the  principal 
debtor,  for  subrogation  to  collateral  securities  held  by  the 
creditor,  so  as  to  prevent  any  dealing  therewith  to  his  pre- 
judice.* The  right  of  subrogation  may  be  lost  by  such 
delay  upon  the  part  of  a  surety  to  claim  it  as  to  amount  to 
laches  ;  especially  where  to  permit  it,  after  a  lapse  of  years, 
third  persons,  who  had  acquired  liens  and  rights  thereon  in 
good  faith,  would  be  injured.4 

But  the  payment  of  a  debt  for  which  a  third  person  is 
bound  by  a  mere  volunteer  or  stranger,  is  not  sufficient  to 

1  Richeson  v.  Crawford,  94  111.  165 ;  Magee  v.  Leggett,  48  Miss.  139  ;  Dun- 

8.  c,  101  Ib.  351.  can  v.  Mobile  R.  R.  Co.  3  Woods, 

1  Hoover  v.  Epler,  52  Pa.  St.  522;  567,  581 ;  ex  parte  Brett,  L.  R.  6  Ch. 

Neptune  Ins.  Co.  v.  Dorscy.  3  Md.  D.  841. 

Ch.  334 ;  Union   Bank  v.  Edwards,  «  Moore  «.    Topliff,   107  111.  241, 

1  Gill  &  J.  346;  Glass  ».  Pullen.  6  249. 

Bush,  346;  Ryner  ».  Ryner,  6  Watts,  *  Gring's  App.    89    Pa.    St.  336; 

221;  Capen's  App.  28  Conn.    220;  Douglass' App.  48  Ib.  223. 


276 


THE   PARTIES   TO  THE  INSTRUMENT. 


entitle  such  persons  to  the  benefits  of  the  equitable  princi- 
ple of  subrogation  to  the  creditor's  collateral  socurities.  It 
is  only  in  cases  where  the  person  advancing  money  to  pay 
the  debt  of  a  third  party  stands  in  the  relationship  of  a 
surety  to  the  principal  debtor,  or  where  one  person  is  com- 
pelled to  pay  to  protect  his  own  individual  interests,  that 
subrogation  to  such  securities  held  by  the  creditor  is  per- 
mitted, in  the  absence  of  any  agreement  for  such  subroga- 
tion.1 Subrogation,  however,  may  be  provided  for,  by 
agreement,  where  such  payments  are  made  by  volunteers 
or  strangers,9  and,  in  the  absence  of  contract,  the  intention 
of  such  parties  that  there  should  be  such  subrogation  will 
control.*  Where  a  debtor,  being  pressed  to  give  security 
for  his  debt,  surrendered  his  property  in  pursuance  of  a 
contract  between  the  parties,  to  a  third  person,  who  agreed 
to  pay  the  debt,  and  gave  his  own  promissory  note  therefor, 
the  creditor  may  maintain  an  action  thereon,  he  being  a 
holder  for  value.4 


1  Sanforcl  v.  McLean,  3  Paige  Ch. 
122;  Shinn  fl.Budd,  14N.J.  Eq.  238; 
Hayes  v.  Wood,  4  Johns.  Ch.  130; 
Beaver  t.  Slnuker,  94  111.  175,  183; 
Hough  V.  Etna  Ins.  Co.  57  Ib.  318; 
Young  a.  Morgan,  89  Ib.  199  ;  Bishop 
«.  O'Connor,  69  Ib.  431,  437;  Hoover 
v.  Epler.  52  Pa.  St.  522;  Mozicr's 
App.  56  Ib.  76;  "Wallace's  Est.59  Ib. 
401  :  "Webster's  App.  86  Ib.  409; 
"Wormer  v.  Waterloo  Society.  62  la. 
699 ;  Bacon  v.  Goodnow.  59  N.  II.  41 5. 

'  "Worncr  v.  Waterloo  etc.  Society, 
supra  ;  Burr  «.  Smith,  21  Barb.  262. 

J  Dodge  v.  Freeman's  Savings  and 
Trust  Co.  93  U.  S.  379  ;  Pacific  Bank 
t>.  Mitchell,  9  Met.  297;  Swope  v. 
Lefflngwell,  72  Mo.  348  ;  Montgom- 
ery Bank  v.  Albany  City  Bank,  7 
N.  Y.  459 ;  White  v.  Knapp,  8  Paige, 
175 ;  Harbeck  v.  Vanderbilt,  20  N. 


Y.  398 ;  Lithcap  v.  Wilt,  4  Phila.  64; 
Wilson  v.  Murphy,  1  Ib.  203 ;  Green 
v.  Key,  3  B.  &  Ad.  313;  Deacon  v. 
Stoclhart,  2  Man.  &  G.  317;  Jones 
v.  Broadhurst,  9  M.  G.  &  S.  173  In 
Dodge  v.  Frecdman's  etc.  Co  ,  supra, 
the  court  (Hunt  J.)  say:  "If  the 
maker  had  anything  to  say  or  do  in 
the  premises,  it  was  to  present  him- 
self with  the  money  when  the  notes 
matured,  pay  them,  and  secure  his 
obligations.  Failing  in  this,  he 
leaves  the  securities  to  be  dealt  with 
as  others  interested  may  choose. 
There  would  appear,  therefore,  in 
the  nature  and  propriety  of  the  sub- 
ject, to  be  no  objection  to  a  transfer 
to  a  third  person  paying  the  money, 
instead  of  a  technical  payment  of 
and  discharge  of  the  notes." 
«  Parson  v.  Clark,  132  Mass.  569. 


SURETY'S  RIGHT  TO  COLLATERALS.  277 

§  215.  THE  SURETY'S  SUBROGATION  TO  THE  DEBT  OR 
JUDGMENT. — The  equitable  principle  of  subrogation  under 
which  the  surety  is  entitled  to  collateral  securities  held  by 
the  creditor,  upon  payment  of  the  principal  debt,  is  also 
applied  in  equity,  to  the  debt  itself  or  the  judgment  ob- 
tained thereon,  and  to  remedies  upon  such  debt  or  judg- 
ment as  against  the  principal  debtor.  This  equitable  claim 
of  the  surety  is  not  only  that  of  subrogation,  pure  and  sim- 
ple, but  it  also  includes  the  right  to  a  formal  assignment  of 
the  debt  or  judgment  by  the  creditor.  The  surety,  by  per- 
forming his  contract  of  payment,  upon  default  of  his 
principal,  the  latter's  obligation  is,  as  to  the  creditor,  dis- 
charged, but  is  kept  alive,  as  between  the  creditor,  debtor 
and  surety,  for  the  purposes  of  securing  the  rights  of  the 
last.1  Nor  will  a  surety  upon  a  judgment  note,  lose  his 
right  of  subrogation  to  the  judgment  entered  thereon,  be- 
cause the  fact  of  his  suretyship  does  not  appear  in  the 
recitals  of  such  judgment.8  The  right  of  subrogation  of 
the  surety  to  the  judgment  of  the  creditor  upon  payment  is 
not  defeated  by  the  failure  to  execute  a  formal  instrument 
of  assignment  by  the  creditor.8  A  creditor,  paid  by  the 
proceeds  of  collateral  securities  deposited  by  a  surety,  is 

1  Knauf  's  App.  91  Pa.  St.  78 ;  was  paid  in  ignorance  of  the  right  of 
Bailey  v.  Brownfield,  20  Ib.  41  ;  subrogation.  Pempsey  0.  Bush.  18 
Richter  v.  Cummings,  60  Ib.  441 ;  Ohio  St.  376  ;  Magee  v.  Leggett,  48 
Hill  V.  Manser,  11  Gratt.  522;  Me-  Miss.  139;  Bowen  v.  Haskins,  45  Ib. 
Dougald  v.  Dougherty,  14  Ga.  674 ;  186 ;  Mitchell  v.  DeWitt,  25  Tex. 
Jones  v.  Fincher,  15  Ind.  308;  (supp.)  180;  Watts  v.  Kinncy,  8 
Braught  v.  Griffith,  16  Iowa,  26;  Leigh,  27;  Lowe  v.  Newbold,  4 
Johnson  v.  Belden,  49  Ib.  301 ;  Spei-  Jones  Eq.  212.  Where  the  creditor 
glemeyer  v.  Crawford  6  Paige,  57 ;  resorts  to  the  collaterals  deposited 
Hayes  v.  Ward,  4  Johns.  Ch.  123  ;  by  the  surety,  he  must  preserve  the 
Davis  v.  Perrine,  4  Edw.  Ch.  65 ;  original  debt,  for  in  equity  the  sure- 
Ellsworth  v.  Lockwood,  42  N.  Y.  89;  ty  is  entitled  thereto.  To  release  an 
Hinckley  v.  Kreitz,  58  Ib.  583,  591 ;  indorser  is  so  to  impair  a  debt  as  to 
Fielding  v.  Waterhouse,  40  N.  Y. ;  discharge  a  surety.  Denny  v.  Lyon, 
Sup.  Ct.  424;  Kummel  v.  Lowe,  28  38  Pa.  St.  98. 
Minn.  265;  Smith  «.  Rumsey,  33  'Owen's  App.  11  W.  N.  C.  488. 
Mich.  183  ;  Nelson  v.  Fry,  16  Ohio  "Duffiekl  t>.  Cooper,  87  Pa.  St.  443. 
St.  553.  Even  where  the  judgment 


278  THE  PARTIES  TO  THE   INSTRUMENT. 

required  to  preserve  his  original  demand  against  the  princi- 
pal debtor  for  the  benefit  of  the  surety.1  The  rule  is  also 
applied  to  a  partner  who  upon  dissolution,  by  assuming  and 
agreeing  to  pay  all  the  debts  of  the  firm,  has  become  the 
principal  debtor.  Where  in  such  case,  the  retiring  partner 
has  been  obliged  to  pay  such  debts,  he  is  entitled  to  sub- 
rogation as  against  the  defaulting  partner,*  and  also  as 
against  the  creditors  of  such  partner.8 

Under  the  common  law,  where  a  judgment  has  been 
rendered  upon  the  debt  against  the  principal,  and  the  same 
has  been  paid  by  a  surety,  and  where  the  debt  itself  had 
been  paid  to  the  creditor  by  the  surety,  both  judgment  and 
debt  being  respectively  extinguished,  the  surety  was  allowed 
no  subrogation  thereto.  Even  an  assignment  of  such  debt 
orjudgment  to  a  third  person  is  ineffective  to  secure  con- 
tinued vitality  so  as  to  be  of  value  to  the  surety.  This 
rule  prevails  also  in  certain  states.  Generally,  the  surety 
is  entitled,  by  statutory  provisions,  to  an  assignment  of  the 
judgment  against  the  principal  debtor,  where  he  has  paid 
the  same.4 

§  216.    THE  SURETY'S  RIGHTS  OP  SUBROGATION,  WHEN 
DEFEATED. — A  surety,  however,  may  estop  himself  by  his 


1  Denny  v.  Lyon,  38  Pa.  St.  98.  takes  an  assignment   thereof  to  a 

1  Scott's  App.  88  Pa.  St.;  Frou's  trustee  for  himself,  he  can  only 

Est.  73  Ib.  459;  Burnside  v.  Fetzner,  claim  as  against  his  principal  the 

63  Mo.  107,  111;  Crafts  v.  Mott,  4N.  sum  he  had  actually  paid.  Reed  ». 

Y.  604.  Norris,  2  M.  &  C.  361.  Dennis  v. 

*  Fessler  v.  Hickernell,  82  Pa.  St.  Rider,  2  McLean,  451 ;  Foster  ». 

150.  Trustees,  3  Ala.430;  Morrisona.Mar- 

4  Jones  t>.  Davids,  4  Russ.  297 ;  vm,  6  Ib.  767 ;  Veach  t>.  Wicker- 

Copis  v.  Middleton,  1  Turn.  &  R.  sham,  11  Bush,  261;  Holmes  «.  Day, 

224,  231 ;  Wofflngton  v.  Sparks,  108  Mass.  563 ;  Hammatt  v.  Wyman. 

2  Ves.569  ;  Craythornec.  Swinburne,  9  Ib.  138 ;  Adams  v.  Drake,  11  Gush. 

14  Ves.  159  ;  Hodgson  «.  Shaw,  8  M.  504.  No  action  at  law  in  Iowa. 

&  K.  183;  Armitage  «.  Baldwin,  5  Johnson  v.  Belden,  49  Iowa,  801.  A 

Beav.  278 ;  Jones  v.  Davids,  4  Russ.  statute  relating  to  sureties  only  is 

277.  Where  a  surety  compounds  a  not  applied  to  indorsers.  Dibrell  c. 

debt  owing  by  hi.s  principal,  and  Dandridgc,  51  Miss.  55. 


SURETY'S  RIGHT  TO  COLLATERALS.  279 

acts  to  claim  the  enforcement  of  the  judgment  against  his 
principal,  as  where  it  is  satisfied  and  discharged,  by  reason 
of  a  compromise  of  the  claim,  brought  about  by  the  active 
efforts  of  the  surety  himself,1  and  his  subrogation  to  the  judg- 
ment is  not  permitted  as  against  his  principal,  where  there 
is  clear  proof  of  an  agreement  of  the  parties  that  it  should 
be  discharged  for  all  and  every  purpose.*  And  laches  will 
defeat  the  claims  of  a  surety  to  subrogation  to  a  judgment, 
as  in  a  case  where  a  surety  as  joint  judgment  debtor  was 
forced  under  execution  to  pay  the  whole  debt,  but  neg- 
lected to  have  the  judgment  assigned  to  his  use  for  more 
than  a  year  after  its  payment.  Meanwhile  the  property 
had  been  sold,  and  the  surety  claimed  to  be  subrogated  to 
the  rights  of  the  creditor  under  the  judgment  as  against 
subsequent  judgment  creditors.8 

§  217.  SUBROGATION  OP  CREDITOR  TO  COLLATERAL 
SECURITIES  OF  SURETY. — The  equitable  principle  of  subro- 
gation to  collateral  securities  is  enforced  in  favor  of  the 
creditor  as  well  as  the  surety.  Where  the  surety  himself 
has  received  such  securities  from  the  principal  debtor  on 
account  of  the  obligation  assumed,  equity  creates  a  quasi 
trust  in  relation  thereto,  in  favor  of  the  creditor  and  of  co- 
sureties, until  the  debt  be  discharged.  The  surety  has  no 
right  to  discharge  or  defeat  such  trust.  The  resort,  however, 
of  the  creditor  for  the  payment  of  his  debt  to  such  col- 
lateral securities  held  by  the  surety,  where  the  former  is 
not  a  party  to  any  agreement  by  which  they  have  been 
placed  in  the  hands  of  the  latter,  is  optional  with  him.  The 
creditor  is  under  no  obligation  to  rely  upon  such  collateral 
securities,  in  place  of  enforcing  the  personal  obligations  of 
the  principal  and  surety,  and  without  his  consent,  he  is  not 
required  primarily  to  attempt  to  realize  his  debt  from  them. 

1  Fielding  0.  Waterhouse,  40  N.  Y.         *  Owen's  App.  11  W.  N.  C.  488; 
Sup.  Ct.  424.  Gring's  App.  89  Pa.  St.  336. 

*  Ibid  ;  Harbeck  v.  Vanderbilt,  20 
N.  Y.  395. 


280  THE   PARTIES   TO  THE  INSTRUMENT. 

The  right  of  subrogation  thereto  is  only  enforced  -where  the 
creditor  chooses  to  avail  himself  of  it.  It  is  his  privilege 
to  avail  himself  of  such  securities,  and  not  an  absolute 
duty,  of  which  a  court  of  equity  will  require  the  perform- 
ance.1 The  right  to  such  subrogation  by  the  creditor 
is  strictly  limited  to  cases  where  the  claim  as  against 
the  surety  is  vfilid  and  existing,  and  capable  of  imme- 
diate enforcement  ;*  nor  can  the  creditor  acquire  any 
greater  interest  in  such  securities  than  the  surety  him- 
self had.8  Where  such  securities  are  held  by  the  surety 
against  loss  by  reason  of  an  existing  liability,  fixed  and 
presently  enforceable,  the  surety  may,  without  and  before 
payment,  unless  otherwise  agreed,  apply  the  securities  to 
the  satisfaction  of  the  principal  debt  upon  which  he  is  obli- 
gated. To  this  equity  the  creditor  is  also  entitled  by  sub- 
rogation, and  by  bringing  a  bill  in  equity  to  enforce  the 
same  is  able  to  secure  payment  of  the  debt  and  to  release 
the  surety.4 

The  right  of  the  creditor  to  such  subrogation  to  collat- 
eral securities  is  not  affected  by  the  fact  that  he  was  not  in- 

1  Thornton  v.  National  Bank,  71  App.  79  Pa.  St.  168;  Roberts  v.  Col- 
Mo.  231;  Hauser  v.  King,  76  Va.  vin,  3  Gratt.  358 ;  Curry  0.  McCauley, 
731;  Leibert  v.  Tru->,  8  Kansas,  11  Fed.  Rep.  365.  A  surety  who 
52 ;  Ohio  Life  Ins.  Co.  v.  Ledyard,  8  had  taken  out  an  insurance  policy 
Ala.  866;  Van  Orden  v.  Durham,  35  on  the  life  of  his  principal  assecur- 
Cal  186;  in  re  Fickett,  72  Me.  266;  ity,  received  the  money  from  the 
Pool  v.  Doster,  59  Miss.  258;  Clark  company.  So  far  as  the  same  was 
v.  Ely.  2  Sandf.  Ch.  166;  Ten  Eyk  not  required  as  indemnity  for  the 
v.  Holmes,  3  Ib.  428;  Curtis  v.  Tyler,  surety,  the  proceeds  were  appropri- 
9  Paige,  432;  Bank  of  Auburn  v.  ated  in  payment  of  the  debt.  Lea®. 
Throop,  18  Johns.  505;  Moses  «.  Hinton,  5  DeG.  M.&  G.  823;  Wright 
Murgatroyd,  Uohns.  Ch.  129;  Vail  v.  p.  Morley,  11  Ves.  22;  Drysdale  v. 
Foster,  4  N.Y.  312;  Crosby  v.  Crafts,  Piggott,  22  Beav.  238. 
5  Hun,  327 ;  Brown  t.  Ray,  18  N.H.  *  Constant  t>.  Matteson,  22  111.  546. 
102  ;  Price  v.  Truesdell,  28  N.  J.  Eq.  •  Bush  t>.  Stamps,  26  Miss.  468. 
200;  Wilcox  v.  Fairhaven  Bank,  7  *  Houser  t>.  King,  76  Va.  (15  Rep. 
Allen,  270;  Eastman  v.  Foster,  8  63);  Constant  v.  Matteson,  22111  546; 
Met.  19;  Rice  v.  Dewey,  13  Gray,  47;  Belcher  ».  Hartford  Bank,  15  Conn. 
Kelly  t>.  Herrick,  131  Mass.  373;  353;  New  London  Bankc.Lee.il 
Owens  «.  Miller,  29  Md.  144;  Rice's  Ib.  118,  122. 


SURETY'S  BIGHT  TO  COLLATERALS.  281 

formed  at  the  time  the  contract  of  suretyship  was  entered 
into  that  the  surety  held  such  securities,  and  therefore  no 
reliance  was  placed  upon  them  in  making  his  loan  and  ad- 
vances.1 Nor  that  he  has  not  reduced  his  claim  against  the 
principal  to  judgment,  nor  exhausted  his  legal  remedies.8 
And  where  the  security  is  a  mortgage,  it  is  immaterial  that 
the  same  is  made  in  terms  simply  for  the  indemnity  of  the 
surety.3  Even  where,  before  the  surety  is  called  upon  to 
pay  the  debt,  the  mortgagor  has  sold  the  land,  and  con- 
veyed the  estate  to  a  third  person  for  value.4  And  a  sure- 
ty may,  upon  agreement,  transfer  his  collateral  securities 
to  the  creditor,  enabling  him  to  retain  possession  thereof 
until  the  debt  of  the  principal  be  paid.6 

§  218.  THE  SUBROGATION  OP  CREDITORS,  AS  AGAINST 
PLEDGEES. — The  principle  of  subrogation  to  securities  held 
by  sureties,  or  parties  in  the  position  of  sureties,  is  applied 
where  an  agent,  secured  by  a  pledge  of  negotiable  bonds, 
obtained  a  loan  of  money  in  his  own  name,  the  money  being 
handed  to  and  used  by  his  principal.  The  creditor  was 
given  a  right  of  subrogation  to  the  collaterals,  although  the 
loan  was  made  on  the  credit  of  the  agent,  betwen  whom  and 
the  principal  equities  existed.  The  creditor  was  also  al- 
lowed to  receive  a  dividend  upon  such  securities  upon  a  fore- 
closure of  a  mortgage  securing  their  payment.6  The  like 
rule  was  applied  to  a  guarantor  of  such  bonds  who  was 
obliged  to  pay  the  debt  of  the  company  issuing  the  same.7 

1  Seibert  t>.  True,  8  Kan.  52;  Crom-  Holmes,  3  Sandf.  Ch.  428  ;  Clark  ®. 
well's  App.  9  W.  &  S.  305  ;  Krame's  Ely,    2  Ib.   166;     Kiddle  v.  Bow- 
App.  37  Pa.  St.  71 ;  Rice's  App.  79  man,  25  N.  H.  236  ;  Aldrich  v.  Mar- 
Ib.  168;  Moorehead  v.  Duncan,  82  tin,  4  R.  I.  520;  Ohio  Ins.  Co.  v. 
Ib.  488;  Curtis  v.  Tyler,  9  Paige,  431.  Ledyard,  8  Ala.  166. 

2  Safford  v.  Wade,  51  Ala.  214.  *  Gossin  v.  Brown,  11  Pa.  St.  527. 

*  New  Bedford  etc.  Inst.  v.  Fair-  5  Calkins  v.  Lockwood,  17  Conn, 

haven  Bank,  9  Allen,  75;  Curtis  c.  174. 

Tyler,  9  Paige  Ch.432;  Moses  w.Mur-  •  Rice's  App.  79  Pa.  St.  168. 

tatroyd,  1  Johns.  Ch.  119 ;  Phillips  «.  7  Penn.  R.  R.  Co.  v.  Pemberton  R. 

Thompson,  2  Ib.  418;  Ten  Eyck  v.  R.  Co.  28  N.  J.  Eq.  338. 


282  THE  PARTIES  TO  THE  INSTRUMENT. 

A  former  guardian  gave  negotiable  bonds  as  collateral  se- 
curity to  his  sureties  to  indemnify  them.  Both  the  princi- 
pal and  sureties  became  insolvent,  and  a  portion  only  of  the 
debt  was  paid  by  the  sureties.  A  guardian,  succeeding  to 
the  trust,  was  given  the  same  rights  as  a  creditor,  and  an 
order  was  entered  to  have  the  securities  sold,  and  the  pro- 
ceeds applied  to  the  payment  of  the  balance  of  the  debt.1 
The  trust  character  of  collateral  securities  held  by  a  surety 
from  his  principal  for  his  indemnity  from  liability,  is  not 
changed  by  a  sale,  and  the  acceptance  by  him  of  promissory 
notes  from  the  purchasers  thereof.  Where  such  notes  are 
pledged  for  an  antecedent  debt,  without  any  further  con- 
sideration, the  pledgee  is  not,  in  New  York,  a  holder  for 
value,  in  the  usual  course  of  business,  and  was  subject  to 
the  prior  equities  of  the  holders  of  the  notes  upon  which 
the  surety  was  bound.9 

§  2L9.  APPLICATION  OP  PROCEEDS  FROM  COLLATER- 
ALS.— The  creditor  holding  collateral  securities  from  the 
principal  to  secure  the  payment  of  several  notes  is  entitled, 
in  the  absence  of  any  stipulation  or  agreement,  to  apply 
them  or  their  proceeds,  in  the  event  that  sufficient  is  not 
realized  to  discharge  the  whole  amount  of  the  indebted- 
ness to  such  of  the  notes  as  he  may  select.8  Nor  is  it  ma- 
terial that  some  of  the  notes  so  secured  bear  the  names  of 
sureties,  while  others  do  not.  The  creditor  has  the  elec- 
tion, subject  to  agreement,  to  apply  such  securities  or  the 
proceeds  thereof  to  the  payment  primarily  of  such 
of  the  notes  as  do  not  bear  the  names  of  sureties.  Until 
the  surety  has  paid  the  full  amount  of  his  liability  on  the 
notes  for  which  such  securities  are  deposited,  he  has  no 
claim  to  any  of  the  proceeds.4  The  right  of  elec- 

1  Kelly  v.  Herrick,  181  Mass.  373.  Allen,  270;  Reed  t>.   Boardman,  20 

»  Clark  v.  Ely,  2  Sandf.  Ch.  166.  Pick.  411;  Richardson  v  Washing- 

1  National  Bank  v.  Biglcr,  83  N.Y.  ton  Bank,  8  Met.  230;  Harding*. 

61,  64;  Field  t».  Holland,  6  Cranch,  8.  Tiflft,  75  N.  Y.  461 ;  Allen  t>.  Culver, 

4  Wilcox   v.  Fairbaven    Bank,  7  8  Den.  285;  Stone  v.  Seymour,  15 


SURETY'S  RIGHT  TO  COLLATERALS.  283 

tion  of  the  creditor  is  not  affected  by  the  unknown 
equities  of  third  parties.1  Where  the  creditor,  how- 
ever, holds  securities  from  the  principal  debtor  to 
cover  all  obligations  held  by  him,  and  there  are  several 
sureties  upon  different  notes,  the  proceeds  of  such 
securities  should  be  divided  pro  rata.* 

The  rule  relative  to  the  application  of  the  proceeds 
of  securities  held  by  a  creditor,  in  the  absence  of  agree- 
ment, is  applied  in  favor  of  sureties  also.  Where  a 
surety  has  assumed  liability  on  several  notes,  for  which 
he  holds  security,  he  may  apply  the  proceeds  thereof 
in  payment  of  such  notes  as  he  may  desire.8  A 
deed  of  trust  executed  by  the  principal  debtor  for  the 
benefit  of  a  surety,  was  delivered  to  a  third  person,  holding 
other  indebtedness  against  the  debtor.  Pii  a  contest  be- 
tween the  two,  as  to  the  application  of  the  proceeds  arising 
from  a  sale  of  the  security,  the  equitable  right  of  the  surety 
that  the  particular  indebtedness  upon  which  he  was  liable 
should  be  first  paid,  was  preferred.4 

§  220.  THE  CREDITOR'S  ENFORCEMENT  OF  THE  PRINCI- 
PAL NOTE. — The  contract  of  the  surety  upon  a  negotiable 
promissory  note  is,  that  the  maker  of  the  note,  the  princi- 
pal debtor,  will  pay  the  same  at  maturity.  The  creditor 
holding  such  notes  is  bound  to  present  the  same  for  pay- 
ment in  due  course,  and  upon  the  principal's  default  in  pay- 
ment, the  surety  becomes  at  once  liable  to  pay.  The 
creditor  is  under  no  obligation  or  duty  to  use  special  or 
active  diligence  to  collect  the  note  from  the  principal 
debtor  in  order  to  charge  the  surety,  since  the  obligation  of 
the  latter  is  at  once  to  pay  the  debt,  upon  which  he  may 

Wend.  20;    Copis  v.  Middleton,   1  'Norton     v.     Plumb,    14    Conn. 

Turn.  &  R.224;  Hodgson  v.  Shaw,  517. 

3  M.  &  K.  183.  *  Kassing  v.  International  Bank, 

1  Harding  v.  Tiflft,  75  N.  Y.  461.  74  111.  16. 

*  Breidenbecker     v.     Lowell,     32 
Barb.  9. 


284 


THE  PARTIES  TO   THE  INSTRUMENT. 


resort  to  any  suit  or  action  to  which  the  creditor  was  en- 
titled. A  failure  to  sue  the  principal,  although  no  notice 
of  the  default  of  the  debtor  be  sent  to  the  surety,  is  not 
sufficient  to  affect  the  liability  of  the  surety  upon  the  prin- 
cipal obligation.  Where  there  are  more  than  two  sureties 
upon  such  note,  the  creditor  may  sue  both  or  either,  at  his 
pleasure.  No  complaint  can  be  made  by  sureties,  as  either 
of  them  may  pay  the  debt  and  become  entitled  to  be 
subrogated  to  the  rights,  remedies,  and  collateral  securities.1 
Statutory  provision  is  made  in  some  states  that  a  surety  who 
fears  the  insolvency  of  his  principal  or  other  sufficient 
equitable  cause,  may,  by  serving  a  proper  notice  upon  the 
creditor,  require  him  to  commence  an  action  against 
the  principal  debtor  forthwith,  upon  default  at  maturity. 
Where  the  creditor  fails  to  perform  his  duty  in  this  respect, 
and  loss  results  to  the  surety  by  reason  thereof,  as  where 
the  principal  debtor  has  in  fact  become  insolvent,  the 
surety  is  discharged  to  the  full  extent  of  his  loss.'  The 


1  Neal  v.  Freeman,  85  N.  C.  352; 
Thornton  v.  same,  63  Ib.  211:  Deal 
t.  Cochran,  66  Ib.  269;  Peppin  v. 
Bond,  5  Ired.  Eq.  91 ;  Schroeppel  v. 
Shaw,  3  N.  Y.  446;  Brick  v.  Free- 
holders etc.  Co.  37  N.  J.  L.  307; 
Grover  v.  Hoppock,  26  Ib.  191 ;  Mor- 
ris Canal  Co.  v.  Van  Vorst,  21  Ib.  100; 
Hough  0.  Etna  Life  Ins.  Co.  57  111. 
318 ;  Taylor  v.  Bank  of  Kentucky,  2 
Marsh.  564 ;  Reeves  v.  Pullian,  9 
Baxt.  153  ;  Pittsburgh  etc.  Ry.  Co.  v. 
Shaeffer,  59  Pa.  St.  350;  Allen  v. 
Brown,  124  Mass.  77 ;  Moreland  v. 
State  Bank,  Breesc,  203,  263.  The 
creditor  is  under  no  obligation  to  the 
surety  of  active  diligence  to  collect 
the  debt  of  his  principal.  Glazier  v. 
Douglass.  32  Conn.  400;  Orme  v. 
Young,  3  E.  C.  L.  S.  84;  Postmaster 
«  Reeder,  4  Wash.  630;  Black  River 
Bank  v.  Page,  44  N.  Y.  453 ;  Wells 
c.  Mann,  45  Ib.  327  ;  Strong  v.  Wor- 


cester, 6  Vt.  536;  Herrick  v.  Borst, 
4  Hill  ,  656;  Shroepfel  v.  Shaw,  3  N. 
Y.  454  ;  in  re  Babcock,  3  Story,  393; 
Hayes  v.  Ward,  4  Johns.  Ch.  132  ; 
Goodman  v.  Litaker,  84  N.  C.  8. 

*  Paine  v.  Packard,  13  Johns.  174; 
King  v.  Baldwin,  17  Ib.  384  ;  s  c.  2 
Johns.  Ch.  554 ;  Damick  v.  Hub- 
bard,  27  Hun,  349 ;  Rein  sen  v.  Beck- 
man,  25  N.  Y.  552 ;  Colgrove  v. 
Tallman,  67  Ib.  95  ;  Hunt  v.  Purdy, 
82  Ib.  486;  Church  v.  Simmons,  83 
Ib.  264;  Toles®.  Adee,  81  Ib.  562; 
Peters  v.  Lineinschmidt,  58  Mo.  464; 
Cope  v.  Smith,  8  S.  &  R  110  ;  Thom- 
as v.  Mann,  28  Pa.  St.  520  ;  Conrad  ». 
Foy,  68  Ib.  381  ;  King  t>.  Haynes, 
35  Ark.  463 ;  Ward  «.  Stout,  32  111. 
399 ;  Bartlett  v.  Cunningham,  85  Ib. 
22 ;  Inning  v.  Fielder,  8  Bradw.  256; 
McCoy  v.  Lockwood,  71  Ind.  319  ; 
Smitli  v.  Clayton,  48  Miss.  66 ; 
Caines  v.  Bates,  85  Mo.  427 ;  Cole  v. 


SURETY'S  RIGHT  TO  COLLATERALS.-  285 

creditor  is  required  to  press  such  suit  against  the  principal 
debtor  to  final  judgment  and  execution.1  Under  such 
statutes  the  notice  is  required  to  be  in  writing  and  served 
upon  the  creditor,  or  his  representative,  and  must  be  full 
and  explicit  in  its  demand  for  the  commencement  of  pro- 
ceedings against  the  principal  debtor.  It  should  be  so 
worded  as  that  the  creditor  must  know  that  unless  he  com- 
plies with  such  notice,  his  claims  upon  the  surety  will  be 
discharged.* 

§  221.  THE  RECOVERY  OF  CREDITOR,  AS  AGAINST  SURE- 
TY.— The  surety's  liability  in  any  action  brought  by  the 
creditor  against  him  in  cases  where  a  judgment  upon  such 
debt  has  been  entered  against  the  principal  debtor,  is  the 
amount  of  such  judgment.  The  sum  stated  in  such  judg- 
ment is  conclusive  as  to  the  extent  of  liability  of  the  surety. 
The  proceedings  by  which  such  judgment  against  the  prin- 
cipal are  obtained  must,  however,  be  conducted  in  good 
faith,  since  the  principal  cannot  enlarge  the  surety's  liabil- 
ity, nor  change  his  contract  by  any  acknowledgement  or 
admissions  made  at  such  time.  If  such  proceedings  are 
tainted  with  collusion  or  fraud,  as  between  the  creditor  and 
principal,  to  the  injury  of  the  surety,  equity  relieves  the 
surety  from  the  operation  of  the  rule  stated,  and  allows 
him  to  show  his  real  liability,  irrespective  of  the  judgment 
enteied  against  the  principal  debtor.8  The  holder  of  prom- 
Fox,  83  N.  C.  463;  Davis  v.  Sucad,  sen  v.  Bcekman,  25  N.  Y.  552;  Col- 
32  Gratt.  705.  See  Hickox  v.  Farm-  grove  v.  Tnllman,  67  Ib  95  ;  Hunt  v. 
ers'  Bank,  35  Vt.  470;  Harris  v.  Ptmly,  81  N.  Y.  486;  Bartlett  v. 
Newell,  42  Wis.  687.  Cunningham.  85  111.  22. 

'Peters®.  Lineinschmiclt,  58  Mo.  *  United  States  9  Allsbniy.  4  Wftll. 
464.  186;  Limlsley  v.  Reid,  101  Pa.  357; 

*  King  v.  Baldwin,  17  Johns.  384 ;  Sice  v.  El  om,  20  Johns  GG9 ;  Stoops 
s.  c.  2  Johns.Ch.  554;  Singer  v.  Traut-  v.  Wittier,  1  Mo.  App.  420;  Berger 
man,  49  Barb.  182  ;  Demick  v.  Hub-  «.  Williams,  4  McLean  125.  Contra: 
bard,  27  Hun,  347 ;  Mutual  etc.  Ins.  Norton  v.  Abercrombic.  16  S.  C; 
Co.  v.  Davies,  56  How.  440  ;  Maier®.  Hcllams  v.  Abercrombic,  15  Ib.  110; 
Canavan,  57  Ib.  504;  Russell  v.  ex  parte  Youug,  L.  R.  17  Ch.  D.G65. 
Weintzer,  2  Abb.  N.  C.  422;  Rem- 


286  THE  PARTIES  TO  THE   INSTRUMENT. 

issory  notes,  however,  can  only  collect  from  a  surety  there- 
on, what  remains  due  on  the  notes  after  deducting  the 
amount  received  from  the  principal  debtor  ; '  otherwise,  as 
against  the  maker,  since  he  will  hold  any  surplus  in  trust 
for  the  indorser  or  surety.* 

In  an  action  upon  a  penal  bond,  recovery  may  be  had 
against  the  principal  and  sureties,  not  only  of  the  amount  of 
the  penalty  named  in  the  bond,  but  also  interest  upon  such 
amount  from  the  time  of  the  breach.8  Such  interest  is  not 
considered  as  forming  part  of  the  penalty  for  the  breach  of 
the  condition  of  the  bond,  but  as  damages  for  non-payment 
or  detention  of  the  penalty  after  it  has  become  due  and  pay- 
able, namely,  immediately  upon  breach  of  the  condition. 
If  the  obligee  then  receives  the  amount  thereof,  he  obtains 
the  sum  provided  for  by  the  contract ;  if  lie  is  paid  at  a 
later  time,  he  secures  less  than  what  the  contract  provides. 
Immediately  upon  forfeiture  of  the  penalty,  it  assumes  the 
character  of  a  debt  due  and  payable.4 

1  In  re  Pulsifer,  U.  8.  D.  Ct.  111.  14  ter  v.  Carter,  4  Day,  30;    Smedes  v. 

Fed.  Rep.  247.  Houghtaliug,  3  Caines,  48  ;  Clark  v. 

1  In  re  Pulsifer,  supra;  ex  parte  Bush,  3  Cow.  151 ;  Harris  v.  Clapp, 

Talcott,  9  N.  B.  R.  502;  in  re  Weeks,  1  Mass.  307;    Bank  of  Brighton*. 

13  Ib.  263;  in  re  Ellerhorst,  5  Ib.  144;  Smith,  12  Allen,  243. 
Downing  v.  Traders'  Bank,  11  Ib.         *  Wyman  v.  Robinson,  73  Me.  584; 

871.  United  States  v.  Arnold,  1  Gall.  348 

3  Peril  v.   Dallis,  2  Dallas,  253;  (Story,  J.);  Gainsforth  v.  Griffith,  1 

Branierd  v.  Jones,  18  N.  Y.  35;  Car-  Baund.  51,  n.  1. 


SURETY'S  COLLECTION  OF  COLLATERALS.          287 


CHAPTER    XXII. 

THE  SURETY'S  COLLECTION  OF  COLLATERALS. 

§222.  The  surety's  enforcement  of  collaterals  from  principal. 

223.  Equitable  aid  to  surety  in  such  enforcement. 

224.  The  surety's  recovery  upon  principal's  collateral  promise. 

225.  The  rule  when  security  is  for  indemnity  merely. 

226.  Surety's  right  of  set-off  against  insolvent  principal. 

227.  The  surety's  obligations  as  to  collateral  securities. 

228.  The  surety's  action  at  law  against  principal  debtor. 

229.  Surety's  right  to  lien  of  judgment  as  against  principal. 

§  222.  THE  SURETY'S  ENFORCEMENT  OF  COLLATERALS 
FROM  PRINCIPAL. — The  surety  who  has  received  securities 
from  his  principal  under  some  new  and  independent  agree- 
ment for  indemnity  and  payment,  as  against  the  liability  in- 
curred by  him  upon  the  principal  note,  is  entitled  to  enforce 
such  collateral  contract  upon  the  maker's  default,  even  be- 
fore payment  of  the  debt.  The  liability  of  the  surety  to 
pay  the  creditor  must  be  fixed  and  certain,  and  the  collat- 
eral contract  of  the  principal  with  the  surety  must  be  to 
pay  the  debt,  and  not  one  of  indemnification  merely.  The 
liability  of  the  principal  to  pay  the  surety,  where  bound 
upon  bond  or  covenant,  is  not  affected  at  law  by  the  equita- 
ble right  of  the  principal  that  the  money  so  paid  shall  be 
applied  in  payment  of  the  debt.  The  obligation  of  the 
principal  to  the  surety  upon  his  independent  contract  arises 
upon  default  in  payment  of  the  principal  debt,  and  is  with- 
out limitation,  and  the  securities  given  may  be  enforced 
without  a  prior  payment  of  the  debt.1  A  mortgage  or  deed 

1  Locke  v.  Homer,  131  Mass.  93 ;      Smith  v.  Pond,  11  Gray,  234 ;  Bet- 
Furnace  v.    Durgin,    119  Ib.  508  ;      tune  v.  Wallace,  2  Rich.  80  ;  Stout «. 


288  THE  PAKTIES  TO  THE  INSTRUMENT. 

of  trust  is  a  common  form  of  security  given  by  a  principal 
debtor  for  the  benefit  of  a  surety  and  is  equally  available 
whether  executed  by  the  debtor  himself,  or  is  the  mortgage 
of  some  third  person  held  by  the  debtor,  and  by  him  as- 
signed and  delivered  to  the  surety.  Where  a  mortgage  or 
deed  of  trust  is  conditioned  to  indemnify  and  to  save  a 
surety  harmless,  and  to  pay  the  debt  upon  maturity,  the 
failure  of  the  mortgagor  and  principal  to  pay  constitutes  a 
breach  of  the  condition,  and  the  surety  is  entitled  to  enforce 
the  security  in  equity  by  foreclosure  and  sale.  The  contin- 
gent liability  of  the  surety  is  a  valuable  and  sufficient  con- 
sideration to  support  the  transfer  or  execution  of  such  mort- 
gage, and  the  foreclosure  and  sale  of  the  property,  and 
appropriation  of  the  proceeds  in  satisfaction  of  his  liabilities 
as  surety.  Nor  is  it  material  under  such  mortgage  securi- 
ties, that  the  surety  shall  have  first  paid  the  principal  debt 
to  entitle  himself  to  the  aid  of  equity.1 

§  223.  EQUITABLE  AID  TO  SURETY  IN  SUCH  ENFORCE- 
MENT.— Courts  of  equity  afford  relief  to  sureties  upon  col- 
lateral contracts  and  securities  received  by  them  from  the 
principal  debtor,  upon  the  default  of  the  latter  to  discharge 

Folger,   34  Iowa,  71  ;    Churchill  v.  of  his  debt ;  but  at  law  the  plaintiff 

Hunt ,  3  Denio,  321 ;  in  re  Negus,  7  is  entitled  to  be  placed  in  the  samo 

AVend.    499;    Port    v.  Jackson,   17  situation  under  this  agreement  as  if 

Johns.  239,  479,  482  ;  Trinity  Church  he  had  paid  the  money  to  the  payee 

v.  Higgins,  48  N.  Y.  532,  Belloni  v.  of  the  bill."    Baron  Parke,  in  Loose- 

Freeborn,  63  Ib  383  ;  National  Bank  more  v.  Radford,  9  M.  &  W.  C57  ; 

v.  Biglcr,  83  Ib.  51,  61;  Lathrop  0.  Carr  v.    Roberts,   5  B.  &  Ad.  78; 

Attwood,  21  Conn.  117;  Redfleld  ».  Smith  v.  Howcll,  6  Exch.  930. 

Haight,  27  Ib.  31  ;  Gage  v.  Lewis,  68  '  Baven  v.  Haskins,  45  Miss.  186 ; 

III.  604; 'Hodgson  v.  Hell,  7  Term.  R.  Goodhcart  v    Johnson,  88  111.  61, 

97;  Holmes  v.  Rhodes,  1   B.  &  P.  Moore    v.    Topliff,    107    Ib.    241, 

638;  Warwick  v.  Richardson,  10  M.  249;  Irick  v.  Black,  17  N.  J.  Eq. 

&  W.  284;  Lethbridge  v.  Mytton,  2  189;  Gibbs  v.  Maynard,  0  Paige'sCh. 

B.  &  Ad.  772;    Penny  v.  Foy,  8  B.  258  ;  Butler  v.  Ladue,  12  Mich.  180  ; 

&  C.  11 ;    s.   c.  2  M.  &  Ry.   181.  Rockfellcr  v.  Donnelly.   8   Cowen, 

"The  defendant  may  perhaps  have  628;  Norton  v.  Reid,  11  S.  C.  593; 

an  equity  that  the  money  he  may  Hellams  v.  Abcrcrombic,  15  Ib.  110. 
pay  shall  be  applied  in  discharge 


SURETY'S  COLLECTION  OF  COLLATERALS.  289 

the  debt  when  clue  and  payable.  In  order  effectively  to  aid 
the  surety  to  discharge  himself  from  his  liability,  the  cred- 
itor as  well  as  the  principal  debtor  may  be  made  a  party  to 
the  suit.  The  former,  being  present  in  court  to  receive 
payment,  the  whole  litigation  may  thus  be  disposed  of.1 
And  where  the  principal  debtor  has  deceased,  his  represent- 
atives may  be  brought  into  a  court  of  equity  with  the  cred- 
itor, and  the  same  relief  obtained."  Nor  will  a  court  of 
equity  require  a  release  by  a  surety  of  collateral  securities 
received  from  the  principal  as  a  preliminary  to  proof  of  the 
debt  against  his  estate.1 

Where  the  condition  of  a  mortgage  is  to  save  the  mort- 
gagee harmless  from  any  loss  by  reason  of  his  entering  into 
a  contract  of  suretyship,  and  to  pay  the  debt  upon  maturity, 
the  failure  of  the  mortgagor  and  principal  to  pay  is  a  breach 
of  such  condition.  Nor  will  a  power  of  sale  contained  in 
such  mortgage,  to  arise  only  upon  the  damnification  of  the 
surety,  affect  the  rights  of  the  latter  to  foreclosure  and  sale 
upon  a  breach  of  the  covenant,  although  the  principal  debt 
remains  unpaid.4  A  bond  or  mortgage  containing  a  prom- 
ise to  pay  as  well  as  an  indemnity  covenant,  extends  to  a 
liability  jointly  incurred  by  the  surely  with  the  principal 
for  money  borrowed  to  pay  the  note  for  which  such  bond 
or  mortgage  was  given  as  security,  and  by  which  such  note 
was  actually  paid.* 

§  224.  THE  SURETY'S  RECOVERY  UPON  PRINCIPAL'S 
COLLATERAL  PROMISE. — The  surety's  right  of  recovery  of 
the  whole  amount  of  his  liability  upon  the  principal  ob- 
ligation, before  payment  thereof,  by  the  collection  of  col- 

1  Gibbs  v.  Menard,  6  Paige's  Ch.  •  West  v.  Bank  of  Rutland,  19  Vt. 

258  ;  Irick  t>.  Black,  17  N.  J.  Eq.  403. 

189 ;  Hellams  v.  Abercrombie,  15  Ib.  4  Butler  v.  Ladue,   12  Mich.  180 ; 

110 ,  Baven  v.  Haskins,  45  Miss.  186;  Rockfeller  v.  Donnelly,  8  Cowen,  628. 

Moore  v.  Topliff,  supra.  6  Nesbit  v.   Worts,   37    Ohio  St. 

*  Woodbridge  v.  Norris,  L.  R.  6  378. 
Eq,  410. 

19 


290  THE  PARTIES   TO  TLIE   INSTRUMENT. 

lateral  securities  received  from  the  principal  under  contracts 
of  indemnification  and  to  pay  the  debt,1  is  supported  in 
cases  where  bonds  with  covenants  to  save  the  makers  of 
negotiable  promissory  notes  payable  to  third  persons  harm- 
less and  indemnifying  them  therefrom  and  to  pay  the 
notes,  are  given.9  Upon  the  execution  of  a  joint  note,  both 
parties  appearing  as  principals,  but  one  being  a  surety,  the 
principal  debtor  gave  a  bond  to  the  surety  covenanting  to 
pay  the  amount  of  the  note  to  the  payee  thereof  at  ma- 
turity. Upon  default,  a  recovery  was  permitted  the  surety 
upon  the  bond  to  the  whole  face  value  of  the  note,  although 
no  payments  had  been  made  thereon  by  him.8  The  rule  is 
applied  where  the  person  standing  in  the  relation  of  surety 
gives  his  own  notes  payable  in  the  future  in  payment  of  the 
debt.  A  bond  given  by  one  partner  upon  the  dissolution  of 
the  firm  covenanted  to  indemnify  and  save  harmless  the 
retiring  partner,  and  "  to  pay  and  satisfy  "  the  debts  of  the 
partnership.  Default  occurring  in  such  covenant,  the  re- 
tiring partner  was  allowed  to  recover  upon  the  bond 
damages  to  the  amount  of  outstanding  indebtedness,  al- 
though notes  had  been  given  for  it.4 

1  Wicker®.  Hoppock,  6  Wall.  94;  *  Churchill  «.  Hunt,  3  Den.  321; 

Lathrop  v.  Attwood,  21  Conn.  117;  Trinity  Church  v.  Higgins,  48  N  Y. 

Redficld  v.  Haight,  27  Ib.  31;  Gage  532;  Belloni  v.  Frecborn,  63  Ib.  383: 

v.  Lewis,  68  111.  604;  Stout®.  Folger,  Hart  v.  Folger,  34  Iowa,  71;  Smith 

34  Iowa,  71 ;  Locke  v.   Homer,  131  ®.  Pond,  11  Gray,  234. 

Mass  93;  Furnace®.  Durgin,  119  Ib.  3  Looscmore  v.  Radfbnl,  9  M.    & 

508;  Smith  v.  Pond,  11  Gray,  234;  W.  657. 

Churchill  v.  Hunt,  3  Denio,  321;  in  4  Lathrop  v.   Atwood.    21   Conn. 

•re  Negus,  7  Wend.  799;  Port®.  Jack-  117;  Redfield  v.  Haight,  27  Ib.  31  ; 

json,    17    Johns.    239.  479;    Trinity  Gage  v.  Lewis,  68  111.  604;    In   re 

Church®.  Higgiiis. 48  N.Y.  532; Bel-  .Negus,    7    Wend.    499;    Locke    ». 

loni®.  Freeborn,  63Ib383;    Bothune  Homer,  131    Mass.  93;  Robinson  v. 

«.  Wallace,  2  Rich.  80;  Loosemorc®.  Robinson.  24  L  T.  Rep  112;  Loose- 

Radford,  9  M.  &  W.  657;  Warwick  more  ®.  Radford,  9  M.  &   W.  657, 

®.    Richardson,    10  Ib.    284;   Leth-  Lethbridge  v.  Myttoa,  2  B.  &  Ad.  772. 
bridge  ®.  Mytton,  2  B.  &  Ad.  772; 
Carr  v.  Roberts.  5  B.  &  Ad.  78 ;  Smith 
v.  Howell,  6  Exch.  730;   1  Saund. 
116,  ». 


SURETY'S  COLLECTION  OF  COLLATERALS.          291 

The  enforcement  of  collateral  securities,  without  pay- 
ment of  the  debt,  was  allowed  where  an  indemnity  bond  to 
save  harmless  and  to  pay  the  money  was  given  upon  a 
misappropriation  of  trust  funds  by  one  of  two  trustees  to 
the  other.  The  trustee,  or  his  representatives,  recovered 
from  the  fraudulent  trustee  the  amount  of  the  bond.1  The 
recovery  of  the  probable  loss  of  a  surety  was  permitted 
without  any  payment  having  been  made,  where  a  mortgage 
was  given  as  security  against  loss  by  reason  of  indorsement 
of  notes  for  the  mortgagor,  the  stipulation  in  the  mortgage 
security  being  that  the  mortgagors  should  "  pay  the  sum  of 
money  above  secured."*  A  third  person  holding  securities 
of  the  principal  in  trust  for  the  benefit  of  a  surety,  is  re- 
quired in  equity  to  apply  the  proceeds  of  the  same  in  pay- 
ment of  the  debt,  upon  default  of  the  principal,  although 
the  surety  has  not  actually  been  damnified.8 

§  225.  THE  RULE  WHERE  SECURITY  is  FOR  INDEMNITY 
MERELY. — A  surety  who  receives  from  the  principal  debtor, 
upon  entering  into  the  contract  of  suretyship,  or  subse- 
quently, collateral  securities  as  against  his  liability  on  the 
principal  obligation,  the  condition  of  such  securities  being 
to  indemnify  and  save  him  harmless  but  with  no  affirmative 
promise  to  pay,  is  not  entitled  to  relief  by  the  enforcement  of 
such  securities  until  damnified.  Under  this  rule,  payment 
of  the  debt  is  generally  required  before  a  court  of  equity 
will  aid  the  surety  in  rendering  the  mortgage  or  other 
security  available  for  his  indemnification.  Until  the  surety 
has  discharged  his  personal  obligation  upon  the  principal 
note,  the  debtor  having  failed  to  pay  the  same,  he  has 
suffered  no  loss.  Where  proceedings,  however,  have  been 
taken  against  the  surety  so  that  in  order  to  save  his  own 
property  from  execution  and  sale,  resort  must  be  had  to  the 

1  Warwick  v.  Richardson,   10  M.         *  Daniel  v.  Joyner,    3  Ired.    Ch. 
&  W.  284.  513. 

'Gunel    v.  McCue,    72  Ind.  34; 
Wright  v.  Whiting,  40  Barb.  235. 


292  THE   PARTIES  TO  THE   INSTRUMENT. 

securities  held  from  the  principal  debtor,  the  equity  of  the 
surety  is  preferred.  In  such  cases,  the  property  of  the 
principal  debtor  thus  pledged  for  the  indemnification  of  the 
surety  is  first  exhausted,  if  it  can  be  done  without  injury  or 
loss  or  delay  to  the  creditor.1  Nor  will  a  court  of  equity 
give  relief  to  a  surety  seeking  to  enforce  payment  from  the 
principal  upon  securities  given  by  him,  where  there  is 
another  equity  of  equal  weight  which  would  suffer  by  such 
enforcement.*  Nor  will  relief  be  given  in  the  case  of  a  surety 
in  a  bond  to  the  government,  where  a  breach  of  the  condition 
operates  as  a  forfeiture  of  the  whole  penalty  of  the  bond,  as  a 
court  of  equity  will  not  lend  its  aid  to  enforce  a  forfeiture  or 
penalty  against  the  principal  until  the  surety  has  become  ab- 
solutely fixed  with  the  payment  of  such  penalty  by  the  re- 
covery of  judgment  against  him.8 

§  226.  A  SURETY'S  RIGHT  OF  SET-OFF  AGANST  INSOL- 
VENT PRINCIPAL. — An  insolvent  principal  is  not  allowed  to 
enforce  the  collection  of  a  debt  which  is  owing  to  him  by  a 
surety  without  first  indemnifying  the  latter  upon  his  obli- 
gations. A  surety  lias,  as  against  his  principal,  the  rights 
of  a  creditor  ;  and  upon  the  insolvency  of  the  principal, 
may  retain  any  funds  or  securities  in  his  possession  belong- 
ing to  his  principal  by  way  of  indemnity  against  his  liabil- 
ity.4 A  court  of  equity  will  upon  application  by  a  surety, 
restrain  a  principal  from  proceeding  at  law  to  enforce  the 
collection  of  a  debt  owing  by  such  surety,  where  the  latter 
is  obligated  for  the  principal  by  his  contract  to  an  amount 


1  National    Bank  v.  Bigler,  88  N.  Johns  249;  Rockfellow  v.  Donnelly; 

Y.  53,  61  ;  Trinity  Church  v.  Hig-  8  Cow.  628. 

gins,  48  N.  Y.  537 ;  Shaw  v.  Loud.  *  Loosemore  «.  Radford,  9  M.  & 

12  Mass.  449  ;  Oilman  v.  Moody,  43  W.  657 ;  Lethbndge  v.  Mytton,  2  B. 

N.    H.  243 ;    Post  v    Tradesmen's  &  Ad.  772. 

Bank,   28  Conn.  420 ;    Shepard  v.  *  Gibbs  t>.  Menard,  6  Paige's  Ch. 

Shepard,  6  Ib.  37 ;  McLean  v.  Rags-  258. 

dale,  31  Miss.  701;  Butler  v.  Ladue,  *  Mattingly  «.  Sutton,  19  W.  Va. 

12  Mich.  180;   Powell  v.  Smith,  8  19. 


SURETY'S  COLLECTION  OP  COLLATERALS.          293 

in  excess  of  the  debt,  unless  upon  full  indemnification.1 
The  insolvency  of  one  of  the  parties  is  sufficient  to  give 
jurisdiction  to  enforce  an  equitable  set-off,  which  is  allowed, 
although  the  debt  of  the  principal  to  the  surety  be  not 
due.*  A  surety  indebted  to  his  principal  may,  upon  equit- 
«ible  grounds,  require  him  to  pay  the  debt  as  soon  as 
it  matures,  and  may  file  a  bill  to  compel  the  appropriation 
of  the  amount  he  owes  the  principal  to  discharge  his  obliga- 
tion to  the  creditor.8  A  payment  by  a  surety  to  the  creditor 
may  be  set  off  in  an  action  by  the  principal  against  such 
surety,  although  not  made  until  after  suit  brought.4  An 
assignee  of  a  judgment  obtained  by  a  principal  against  a 
surety  in  the  cases  mentioned,  stands  in  no  better  position 
than  his  assignor.' 

§  227.  THE  SURETY'S  OBLIGATIONS  AS  TO  COLLATERAL 
SECURITIES. — A  surety  who  has  received  collateral  securi- 
ties from  his  principal  to  protect  him  in  the  obligations  in- 
curred, is  required,  upon  the  discharge  of  the  debt  by  the 
principal  to  return  the  same  to  the  pledgor.  Mere  techni- 
cal objections  are  not  allowed  to  be  set  up  as  a  ground  upon 
which  to  refuse  to  make  such  re-transfer.6  The  return  of 
such  securities,  however,  cannot  be  demanded  until  the 
contract  obligations  of  the  surety  upon  the  principal  debt 
have  been  satisfied,  and  the  surety  fully  released.1  Only 
fraud  or  gross  negligence  sufficient  to  create  a  presumption 
of  fraud,  will  charge  sureties  who  have  received  collateral 
securities  from  their  principals  with  their  loss.  Such  charge 
is  only  made  where  it  would  be  unjust  and  inequitable  to 
the  principal  were  the  sureties  not  so  charged.* 


1  Abbey  v.  Van  Empen,  1  Freem.  St.  475 ;  Beaver  v.  same,  23  Ib.  166; 

Ch.  273.  Brittain  ®.  Quitt,  1  Jones  Eq.  328. 

'Lindsay  t.  Jackson,  2  Paige,  *  Haltingly®.  Button,  19  W.Va.  19. 
581 ;  Simpson  v.  Hart,  14  Johns,  63;  <  Blackford  v.  Brown,  34  Mich.  4. 
Mattingly  v.  Sutton,  19  W.  Va.  19.  7  Jewett  v>.  Warren,  12  Mass.  300; 

1  Haltingly  v.  Sulton,  supra.  Vest  v.  Green,  3  Mo.  219. 

4  Thompson  v.  McClelland,  29  Pa.          •  Wells  v.  Wells,  53  Vt.  1. 


294  THE  PARTIES  TO  THE  INSTRUMENT. 

In  the  absence  of  a  special  agreement  between  the  prin- 
cipal debtor  and  surety,  the  mere  receipt  by  the  latter  of 
collateral  security  in  fulfilment  of  a  promise  of  indemnifica- 
tion, whether  express  or  implied,  is  not  sufficient  of  itself 
to  discharge  the  principal  from  his  obligation  to  the  surety 
to  pay  the  debt  al  maturity.1  Where  such  security  proves 
worthless,  a  surety  may,  upon  the  equitable  terms  of  pay- 
ment of  the  debt,  proceed  at  once  to  an  action  at  law  to  re- 
cover the  amount  thus  paid.8  But  a  surety  holding  collat- 
eral security  from  his  principal  who  has  neglected  to  avail 
himself  of  the  proceeds  thereof  to  pay  the  debt,  and  has 
suffered  his  own  property  to  be  sold  at  a  great  sacrifice, 
upon  an  execution  issued  upon  the  principal  debt,  is  not 
entitled  to  maintain  an  action  against  the  principal  for  his 
special  damage.8 

§  228.  THE  SURETY'S  ACTION  AT  LAW  AGAINST  PRIN- 
CIPAL DEBTOR. — No  recovery  at  law  as  against  his  principal 
is  permitted  the  surety  until  he  has  himself  first  paid  the 
debt  or  judgment  rendered  thereon,  unless  by  an  express 
agreement  giving  a  right  of  action  to  the  surety  before 
payment.4  The  surety's  right  of  action  at  law  as  against  his 
principal  accrues  at  the  time  of  payment  of  the  principal 
debt,  from  which  time  the  statute  of  limitations  begins  to 
run.6  Nor  will  any  tiling  less  than  a  payment  and  satisfac- 
tion of  the  whole  amount  of  the  principal  debt  be  sufficient, 
as  a  surely  is  not  allowed  to  sue  his  principal  as  often  as  he 
chooses  to  pay  a  portion  of  the  debt  which,  upon  the  prin- 

1  Cornwall  v.  Gould,  4  Pick.  444.  den,  2  Scam.  257;   Lcabo  ».  Goodc, 

»  Coburn  v.  Parker,  11  Gray.  335.  67  Mo.  126;  Hearne  v.  Keath,  63  Ib. 

•Vance     &     Lancaster,    3     Hay  84.     Hellams  v.  Abcrcrombic,  15  S. 

(Tenn.)  130.  C.  110;    Peters  v.  Barnhill.  1  Hill, 

4  Morgan  «.  Smith,  70  N.  Y.  537;  234 ;  Stinson  v.  Brennan,  Cliev.  16. 

Powell  v.  Smith,  8  Johns.  249 ;  El-  Peacock  v.  Jeffrey,  1  Taunt.  426. 
wood  v.  Diefendorf,    5   Barb.    398;          *  Loughbridge     v.    Bowland,    52 

Trotter  v.  Strong,  63  111.  272 ;  Darst  Miss.  546;  Bonham  v.  Galloway,  13 

v.   Bates,  51   Ib.    439;   Bcnham  v.  111.68;  Shepard  t>.  Ogden,  2  Scam. 

Galloway,  13  Ib.  68 :  Skcpard  «.  Og-  257. 


SURETY'S  COLLECTION  OF  COLLATERALS.          295 

cipal's  default,  he  is  bound  to  pay  in  full.1  Where  a  judg- 
ment is  entered  against  himself  and  the  principal,  and  the 
surety  has  paid  the  same,  he  may  sue  the  principal  at  law, 
although  entitled  to  an  execution  upon  the  judgment  on 
the  principal  note.8  No  rights  are  acquired  by  payments 
made  by  a  surety  under  a  mistaken  belief  that  he  was  liable, 
nor  will  they  be  sufficient  to  support  an  action  at  law  against 
the  principal  debtor,8  nor  where  such  surety  has  given  his 
own  promissory  notes,  on  time,  unless  he  shows  that  they 
have  been  paid,  or  that  he  has  means  to  pay  them  at  matur- 
ity.4 The  rule  is  the  same  where  the  payment  of  such  new 
notes  are  secured  by  mortgage,  unless  the  creditor  has 
received  the  same  in  full  satisfaction  of  his  claim  against  the 
principal  debtor.*  The  surety's  recovery  is  generally  re- 
stricted to  the  amount  he  has  actually  paid  to  discharge  the 
debt  and  costs.6  No  action,  however,  can  be  maintained  to 
enforce  an  indemnity  against  a  liability  which  has  not  arisen, 
and  which  may  never  exist.7 

It  is  a  good  defense  to  an  action  at  law  by  a  surety  for 
money  paid  to  his  principal's  use,  that  the  defendant  offers 
to  show  that  he  has  assigned,  in  pursuance  of  an  agreement 
with  plaintiff  and  other  sureties,  the  whole  of  his  property 
in  consideration  of  being  exonerated  from  all  liabilities,  and 
to  be  subject  to  no  further  claims  growing  out  of  such  con- 
tract of  suretyship.  An  agreement  to  this  effect  constitutes 
a  good  accord  and  satisfaction,  and  is  supported  as  a  com- 
promise, executed,  and  with  evidence  to  sustain  it.8  A 


1  Jones  v.  Trimble,  3  Rawle,  381.  Bormey  v.  Seeley,  2  Wend.  481;  Mor- 

*  Kimmel  v.  Lowe,  28  Minn.  265;  gan  v.  Smith,  70  N.  Y.  537. 
Lange    v.  Peiley,  47  Mich.  352.  'Hughes  ».  Indian  Mines  Co.,  L. 

8  Bancroft  v.  Abbott,  3  Allen,  524.  R.  20  Ch.  D.  561 ;  Lloyd  v.  Dimmack, 

4  Lynch  v.  Hancock,  1 4  S.  C.  66.  L.  R.  7  Ib.  398.    Otherwise,  as  to  an. 

*  Witherby  v.    Mann,   11   Johns.  existing  liability.    Phene  V.  Gillian, 
518 ;    Bormey  ».   Seeley,    2  Wend.  5  Hare,  1,  12. 

481.  •  Lange  v.   Perley,  47  Mich.  352; 

•Hearne    v.  Keath,   63  Mo.  84;  Pulliam B.Taylor,  50  Miss. 251;  Bull 

Eggeshall  v.  Ruggles,   62  111.  401;  c.  Bull,43  Conn.  455;  Marvin  0.  Treat, 


296  THE  PARTIES  TO   THE  INSTRUMENT. 

judgment  was  obtained  against  a  principal  debtor  and  sure- 
ties on  a  note,  and  the  recovery  being  less  then  expected, 
the  creditor  obtained  an  indictment  of  perjury  against  the 
principal.  Subsequently  the  felony  was  compounded  by 
the  transfer  to  him  of  a  note  of  a  third  person,  being  the 
whole  property  of  the  debtor.  The  surety's  liability  on  the 
judgment  remaining  unaffected,  a  court  of  equity  required 
the  proceeds  of  the  note  to  be  appropriated  to  the  payment 
of  the  judgment,  the  surety  being  without  part  in  the 
illegal  transaction.1 

§  229.  SURETY'S  RIGHT  TO  LIEN  OP  JUDGMENT  AS 
AGAINST  PRINCIPAL. — A  surety  who  has  paid  a  judgment 
entered  against  him  by  a  creditor  upon  his  obligation  for  his 
principal,  is  entitled  to  be  subrogated  for  his  indemnity  to 
the  lien  of  the  judgment  upon  his  principal's  land.  The 
rule  was  applied  where  separate  judgments  had  been  entered 
at  different  terms  of  a  court,  one  against  the  principal,  and 
the  other  against  the  surety,  and  subsequently  ;i  further 
judgment  was  entered  in  another  state  upon  the  record  of 
the  judgment  rendered  against  the  surety.  This  last  judg- 
ment was  paid  by  the  surety,  who  was  allowed  subrogation 
to  the  judgment  lien  of  the  creditor  as  against  the  land  of 
the  principal  on  the  first  judgment.*  A  surety  was  allowed 
where  several  judgments  had  been  obtained  against  both 
principal  and  surety  for  the  same  debt,  and  the  latter  had 
paid  the  judgment  against  himself,  whereupon  the  sheriff 

37  Conn.  96;  Blinn  v.  Chester,  5  Day,  "VVaysdall  v.  Duer,  3  Den.  410;  La 
359;  Eaton  v.  Lincoln,  13  Mass.  424;  Farge  v.  Herter,  11  Barb.  171  ;  Wat- 
Peck  v.  Davis,  19  Pick.  490 ;  Brooks  kins  ».  Inglesby,  5  Johns.  386;  Ren- 
t>.  "White,  2  Met.  283 ;  Tuttle  v.  same,  ard  v.  Fuller.  4  Bosw.  107;  Luding- 
12  Ib.  551 ;  Douohoe  t>.  Woodbury,  ton  v.  Bell,  77  N.  Y.  138 ;  Boyd  v. 
6  Cush.  149;   Bigelow  v.  Baldwin,  1  Hind.  1  H.  &  N.  947  ;  Good  ».  dices- 
Gray,  245;  Ball  v.  Wyett,  99  Mass.  man,  2  B.  &  Aid.   328;   Mellon  v. 
838  ;  Guild  t>.  Butler,  127  Ib.  386 ;  Goldsmith,  29  E.  L.  &  E.  241. 
Savage  «.  Everman,  70  Pa.  St.  315;  '  Breese  ».  Schuler,  48  111.  429. 
McCreaiy  v.  same,  5  Gill.  &  J.  147 ;  »  Bank  ».  Allen,  76  Va.  200. 
Mellen  t>.  Goldsmith,  47  Wis.  573 ; 


SURETY'S  COLLECTION  OF  COLLATERALS.          297 

entered  satisfaction  on  both  executions,  to  vacate  such  satis- 
faction of  the  judgment  against  his  principal,  and  to  enforce 
it  against  his  estate.1  Generally  judgments  rendered  in  one 
state  upon  judgments  previously  rendered  in  another  state, 
merge  the  first  judgment,  so  that  a  surety  has  no  right  upon 
payment  to  be  subrogated  to  the  first  judgment  as  it  is 
extinguished.9 

1  Perkins  v.  Kershaw,  1  Hill's  Ch.  Beebe,  7  Eng.  (Ark.)  549;  Frazicr  v. 

(S.  C.)  344.  McQueen,  20  Ib.  68 ;  Hannab  ».  Guy, 

J  Gould  v.  Hayden,  63  Ind.  443;  3  Bush,  91;Denegrc»,  Ham,  13  Iowa, 

Cook  v.   Armstrong.   25  Miss.  63;  240 ;  Bank  of  U.  S.  «.  Pattern,  5  How. 

Purdy  v.  Doyle,  1  Paige,  558;  Chitty  200. 
e.  Glenn,  3  Monr.  424;  Whiting  t>. 


THE  PARTIES  TO   THE  INSTRUMENT. 


CHAPTER    XXIII. 

CONTRIBUTION  BY  SURETIES  WITH   COLLATERALS. 

§230.  Contribution  as  to  collateral  securities  by  co-sureties. 

231.  Surety  with  collaterals  a  trustee  for  co  sureties. 

232.  Holding  collaterals,  no  bar  to  suit  for  contribution. 

233.  The  surety's  right  to  collateral  securities  of  co-sureties. 

234.  Limitation  and  waiver  of  right  of  contribution. 

235.  Application  of  proceeds  of  cosurety's  securities. 

236.  The  right  of  contribution  where  part  only  of  debt  paid. 

237.  Contribution  between  accessory  sureties. 

238.  The  surety's  action  at  law  for  contribution. 

§230.  CONTRIBUTION  AS  TO  COLLATERAL  SECURITIES 
BY  CO-SURETIES. —  Contribution  between  co-sureties  is 
founded  upon  the  maxim  "  Equality  is  equity,"  and  rests 
upon  natural  justice.  Persons  holding  the  relations  of  co- 
sureties stand  upon  a  common  ground  of  interest  and  right, 
and  are  entitled  to  contribution  as  well  in  the  application  of 
collateral  securities  given  by  the  principal  debtor  to  one  or 
more  of  such  co-sureties,  as  to  contribution  from  them  in 
payment  of  the  principal  debt.  The  claim  of  sureties  to  the 
benefit  of  collateral  securities  held  by  a  co-surety  is  founded 
upon  principles  of  equity  governing  the  relations  of  co-sure- 
ties to  one  another.  The  right  is  given  independently  of 
any  contract,  or  of  the  intentions  of  the  principal  debtor 
giving  and  surety  receiving  such  securities  ;  for  the  right  to 
contribution  from  the  co-surety  holding  such  collaterals  is 
equally  as  strong  where  they  are  given  for  the  special  benefit 
of  such  co-surety  as  where  given  generally.  The  principal 
debtor  is  not  permitted,  while  the  principal  obligation 
remains  unpaid,  and  the  liabilities  of  sureties  to  each  other 
unsettled,  to  cast  a  greater  burden  upon  one  or  more  sureties 


CONTRIBUTION   BY   SURETIES. 


299 


by  securing  the  others,  when  all  at  the  inception  of  the  un- 
dertaking stood  upon  an  equal  footing.  The  securities  the 
principal  puts  in  the  power  of  one  surety  for  his  own  relief 
constitute  a  quasi  trust  fund  for  the  indemnity  of  all  his  co- 
sureties.1 

§231.  SURETY  WITH  COLLATERALS  A  TRUSTEE  FOR 
CO-SURETIES. — One  of  two  or  more  co-sureties  who  holds 
collateral  securities  from  the  principal  debtor  to  indemnify 
him  in  his  obligations  as  surety,  is  chargeable  with  a  quasi  or 
secondary  trust  concerning  the  same  for  the  benefit  of  the 
co-sureties.  In  connection  therewith  he  is  required  to  act 
in  good  faith  ;  and  if,  by  fraudulent  dealings  or  gross  negli- 
gence amounting  to  fraud,  such  securities  are  lost  or 
rendered  valueless,  it  is  a  good  defense  pro  tanto  against 
any  suit  for  contribution  by  such  surety.1  A  surety  may  by 


1  Logan  v.  Talcott,  59  Cal.  652; 
Scribner  v.  Adams,  73  Me.  541; 
Steele  v.  Mealing,  24  Ala.285;  Taylor 
v.  Morrison,  26  Ib.  728;  Monson  •». 
Drakely,  40  Conn.  552;  Robertson  v. 
DethcM-agc,  82  111.  511 ;  Paul  v.  Berry, 
78  Ib.  158;  Salyers  v.  Ross,  15  Ind. 
130;  Siebert  v  Thompson,  8  Kan. 
65 ;  Batchelder  v.  Fi>k,  15  Mass.  464; 
Chaffee  v.  Jones,  10  Pick.  260;  Hood 
v.  Lcland,  1  Met.  387;  McCunc  v. 
Bolt,  45  Mo.  174;  State  «.  Berning, 
74  Ib.  98;  Nally  v.  Loner,  56  Mel.  5G7; 
Smith  v.  Conrad,  15  La.  Ann.  594; 
Brown  v.  Ray,  18  N.H.  102;  Paulin 
V.  Kaighn,  27  N.  J.  L.  503;  s.  c.  29 
Ib.  480;  Hall  v.  Robinson,  8  Ired.  L. 
56;  Bell  v.  Jasper,  2  Ired.  Ch.  597; 
Leury  v.  Cheshire,  3  Jones  Eq.  170; 
Campbell  v,  Mesier,  4  Johns.  Ch.  334; 
Elwood  v.  Diefendorf .  5  Barb.  398 ; 
Norton  v.  Cooms,  6  N.  Y.  33  ;  Wells 
0.  Miller.  66  Ib.  255 ;  Armitage  v. 
Puliver,  37  Ib.  494  ;  Sayles  v.  Sims, 
73  Ib.  551 ;  Hinckley  *.  Kreitz,  58 
Ib.  543 ;  Butler  v.  Birkey,  13  Ohio 


St.  514;  McCrory  ®.  Parks,  18  Ib.  1; 
Agnew  v.  Bell,  4  Watts,  31;  McMa- 
hon  v.  Fawcett,  2  Rand.  514;  Mit- 
chell v.  Bass,  24  Tex.  392;  Miller  v. 
Sawyer,  30  Vt.  412;  Aldrich  ».  Hop- 
good,  39  Ib.  617;  Mayhew  v. 
Crickett,  2  Swanst.  198  ;  Craythorne 
v.  Swinburne,  14  Ves.  160;  Swain  v. 
Wall,  1  Rep.  Ch.  149 ;  Knight  v. 
Hughes,  Mood.  &  M.  247;  Deering 
v.  Winchelsea,  2  B.  &  P.  270;  Steel 
v.  Dixon,  L.  R.  17  Ch.  D.  825. 

8  Green  v.  Millbank,  56  How.  382; 
Fielding  v  Waterhouse,  40  N.  Y. 
Supr.  Ct.  414;  Paiilin  v.  Kaighn,  29 
N.  J.  L.  480  ;  Schmidt  v.  Coulter, 
6  Minn.  492;  Taylor  v.  Morrison,  26 
Ala.  728 ;  Roberts  v.  Sayer,  6  Monr. 
188;  Ramsey  v.  Lewis,  30  Barb.  403; 
Morrison  v.  Poyntz,  7  Dana,  307. 
Where  he  sells  the  securities,  and 
fails  to  collect  the  proceeds.  Chilton 
v.  Chapman,  13  Mo.  470.  Taylor  v. 
Morrison,  26  Ala.  728;  Hall  v.  Rob. 
inson,  8  Ired.  56 ;  Cheeseborough  v. 
Millard,  1  Johns.  Ch.  409. 


300  THE  PAETIES  TO   THE  INSTRUMENT. 

his  default  in  this  respect  estop  himself  from  asserting  an 
equitable  right  to  contribution  which  otherwise  he  might 
have  as  against  co-sureties.1  The  release  or  surrender  by  a 
surety  of  a  mortgage  or  other  security  given  by  the  principal 
debtor  to  one  of  two  or  more  sureties  without  the  consent 
of  other  co-sureties,  operates  as  a  waiver  of  the  right  to  con- 
tribution to  the  extent  at  least  of  the  value  of  the  securities 
so  released  or  surrendered.8  An  agreement  by  a  principal 
debtor  under  which  he  has  deposited  funds  with  a  person  who 
has  signed  notes  with  him  as  surety,  that  the  same  shall  be 
applied  to  the  payment  thereof,  cannot  be  revoked  after  the 
negotiation  of  such  notes  for  value.  Upon  a  failure  of  the 
surety  to  apply  the  money  as  agreed  co-securities  are  dis- 
charged of  any  claim  to  contribution.8  Such  surrendered 
securities  are  estimated  at  their  face  value,  unless  sliown  to 
be  of  less  value.4 

§  232.  HOLDING  COLLATERALS,  NO  BAR  TO  SUIT  FOR 
CONTRIBUTION. — The  claim  of  the  surety  to  contribution 
from  his  co-sureties  is  not  defeated  by  his  mere  receipt  of  col- 
lateral securities  from  the  principal.  Upon  payment  of  his 
aliquot  portion  of  the  debt  by  a  co-surety,  the  latter  is 
entitled  to  contribution  from  the  securities  held  by  his  co- 
surety.6 This  relief,  however,  is  granted  only  upon 
equitable  terms.  A  surety  obtaining  indemnity  for  a  valu- 
able consideration  paid,  is  not  required  to  extend  the 
benefits  arising  therefrom  to  a  co-surety,  without  the  latter 
first  pays  his  proportion  of  the  consideration.  If  an  offer 
of  security  be  made  by  the  principal  debtor  upon  condition 
that  the  sureties  shall  execute  a  release,  and  one  surety  only 
accepts,  the  other  refusing,  although  the  latter  may  require 

1  Steel  v.  Dixon,  L.  R.  17  Ch.  D.  «  Morrison  «.  Taylor,  21  Ala.  779  ; 

832.  Mandigo  v.  same.  26  Mich.  349. 

*  Goodloe  v.  Clay,  6  B.  Mon.  236 ;  4  Paulin  v.  Kaighn,  supra. 

Ramsey   t>.  'Lewis,   80  Barb.  403 ;  6  Paulin  «.  Kaighn,  29  N.  J.  L. 

Taylor  v.   Morrison,   26  Ala.  728 ;  480 ;  Johnson's  Admr.  v.  Vaughan, 

Paulin  ».  KaSghn,29  N.  J.  L.  480.  65  111.  425. 


CONTRIBUTION   BY  SURETIES.  301 

that  the  proceeds  of  the  securities  shall  be  applied  in  reduc- 
tion of  the  common  debt,  such  proceeds  can  in  no  other  way 
enure  to  his  benefit.  Payment  of  the  debt  would  discharge 
the  former  surety  from  contribution  if  it  amounted  to  his 
proportion  of  the  common  liability.1  Co-sureties  are  not 
discharged  by  a  mere  exchange  of  securities  by  a  surety  re- 
ceiving the  same  from  the  principal  debtor  if  made  in  good 
faith,  although  without  the  knowledge  of  co-sureties.1 

Where,  however,  the  securities  given  to  one  of  two  or 
more  sureties  by  the  principal  debtor  are  of  sufficient  value 
to  reimburse  the  surety  holding  the  same  upon  payment  of 
the  debt,  equity  requires  him  to  enforce  such  securities 
rather  than  to  bring  an  action  or  suit  for  contribution 
against  his  co-sureties.*  Where  such  securities  upon 
realization  prove  to  be  less  in  value  than  the  debt,  the 
surety  paying  the  debt,  is  entitled  to  contribution  as  to  the 
excess  paid.4 

§  233.  THE  SURETY'S  RIGHT  TO  COLLATERAL  SECURI- 
TIES OF  CO-SURETIES.  —  As  affecting  the  rights  of  co-sure- 
ties to  contribution,  it  is  immaterial  whether  the  collateral 
securities  held  by  a  surety  from  the  principal  debtor  are 
received  in  virtue  of  a  bargain  made  at  the  time  of  the 
entry  into  the  relations  of  suretyship  or  are  given  subse- 
quently. The  rule  is  that  whatever  goes  to  diminish  the 
total  burden  of  such  sureties  must  be  brought  as  between 
the  co-sureties  into  "  hotch-pot."4  Nor  is  the  claim  to  con- 
tribution affected  by  the  fact  that  the  co-sureties,  upon 
entering  into  the  contract,  were  uninformed  of  the  agree- 


1  White  v.  Banks,  21  Ala.  705.  v.  Bray,  10  Pa.  St.  519  ;  Hall  v.  Rob- 

*  Carpenter  v.  Kelly,  9  Ohio,  106.  inson,  8  Ired.  56;  Miller  v.  Sawyer, 
8  Morrison  r>.  Taylor,  21  Ala.  779.  30  Vt.  412;  McCune  v.  Belt,  45  Mo. 
4  Currier  v.  Fellows,  27  N.  H.  366;  174  ;  Whipple  v.  Briggs,  28  Vt.  617; 

Batcheldor  v.   Fisk,   17  Mass.  464  ;  Fuller  v.  Hapgood,  39  [b.  617  ;  Dear- 

John  v.  Jones,  16  Ala.  454.  ing  a.  Winchelsea,  1  Cox,  318;  Steel 

•  Norton  v.  Cooper,  6  K  Y.  33;  v.  Dixon,  L.  R.  17  Ch.  D.  832. 
Agnew  v.  Ball.  4  Whart.  31  ;  Moor 


302  THE  PARTIES  TO  THE  INSTRUMENT. 

ment  between  the  principal  and  surety  for  the  giving  of 
such  securities.1  Sureties,  to  be  entitled  to  contribution, 
must  not  only  be  bound  as  co-sureties,  but  there  must  be 
the  same  relation  to  the  common  principal  and  an  absence 
of  equities  as  between  themselves.  The  actual  relations 
of  the  parties  may  be  shown  by  parol.9  Nor  will  contribu- 
tion exist  as  against  a  co-surety,  by  reason  of  any  considera- 
tion existing  between  the  principal  debtor  and  the  co-surety 
after  the  entry  of  the  latter  into  his  original  contract  of 
suretyship,  especially  where  the  rights  of  third  parties 
would  be  affected.3 

The  rule  that  the  surety  is  entitled  upon  payment  of  the 
debt  to  collateral  securities  held  by  the  co-surety,  is  en- 
forced where  the  security  is  an  absolute  bill  of  sale  of  cer- 
tain property,  parol  proof  being  admitted  to  show  thatit was 
given  only  as  security.4  The  equitable  principle  of  contri- 
bution was  not  applied  where  a  surety  of  a  defendant  in 
execution  having  paid  the  amount  of  the  judgment  and 
obtained  an  assignment  thereof,  by  a  summary  proceeding 
at  law  sought  to  sue  out  an  execution  against  his  co-surety. 
Such  a  proceeding  being  a  purely  legal  one,  conducted  in  a 
summary  manner,  without  the  formalities  of  pleading, 
rendered  it  impossible  to  invoke  equitable  doctrines  in  favor 
of  the  surety.* 

§  234.  LIMITATION  AND  WAIVER  OF  THE  RIGHT  OF 
CONTRIBUTION. — A  surety,  before  becoming  such,  may  fair- 
ly stipulate  with  the  principal  debtor  for  a  separate  indem- 

1  Wells  v.   Miller,  66  N.  Y.  255;  «  Gregory  v.  Murrell,  2  Ired.  Eq. 

Norton  v.  Cooins,  6  Ib.  133;  Barry  v.  233 ;  Hall  v.  Hoxsey,  84  111.  616. 

Ransom,   12  Ib.  462;   Campbell   v.  •  Hull  v.  Sherwood.  59  Mo.  172; 

Mesier,4  Johns.  Ch.  337;  Craythorne  Hammond  ».  Wyman,  9  Mass.  138  ; 

«.  Swinburne,  14  Ves.  640  ;  Steel  v.  Brackett  v.  Winslow,    17  Ib.  154 ; 

Dixon,  L.  R.  17  Ch.  D.  825.  Stevens    v.   Moore,    7    Grcenl.  24 ; 

1  Sayles  v.  Sims,   73  N.  Y.  551 ,  Adams  «.  Drake,  11  Cush.  503 ;  Spie- 

Hinckley  v.  Kreitz,  58  Ib.  583;  Wells  gelmeyer  t».  Crawford,  6  Paige,  254; 

0.  Miller,  supra.  Clason    t>.    Morris,  10  Johns,  524; 

•  Hines  «.  Keller,  3  W.  &  S.  401.  Harbeck  c.  Vanderbilt,  20  N.  Y.  395. 


CONTRIBUTION   BY   SURETIES.  303 

nity  for  himself.  If  he  does  so,  his  co-sureties  are  entitled 
to  the  surplus  only  after  his  full  exoneration.1  And  as  be- 
tween themselves,  co-sureties  may  by  agreement  so  fur  sever 
their  unity  of  interest  and  obligation  as  to  waive  or  aban- 
don their  claim  to  contribution.2  A  surety  loses  his  right 
of  contribution  where,  by  a  previous  agreement  with  the 
principal,  made  without  the  knowledge  of  the  co-surety,  he 
received  a  part  of  the  money  obtained  on  the  negotiation  of 
the  paper,  although  he  had  paid  the  whole  debt.3  A  surety 
receiving  securities  for  individual  claims  against  the  princi- 
pal debtor,  will  not  be  subjected  to  contribution  by  co-sure- 
ties upon  another  and  independent  debt.4  Sureties  may 
contract  themselves  out  of  any  benefit  to  which  they  would 
be  entitled  from  collateral  securities  held  by  co-sureties.5 
The  securities  so  received  or  the  proceeds  thereof  when  ap- 
propriated to  a  particular  debt,  can  not  be  applied  by  the 
surety  to  the  pa}Tment  of  any  other  debt  of  the  principal,  to 
the  injury  or  prejudice  of  the  co-sureties.6  Equity  will  fol- 
low such  securities  into  the  hands  of  a  co-surety  or  of  a 
third  person,  where  it  can  be  done  without  injury.7 

§  235.  APPLICATION  OP  PROCEEDS  OF  CO-SURETY'S  SE- 
CURITIES.— Collateral  securities,  or  the  proceeds  thereof, 
held  generally  by  one  who  is  a  surety  on  different  obliga- 
tions, with  different  co-sureties  on  each,  are  applied  pro 
rata  to  the  several  claims,  and  for  the  benefit  of  such  co- 
sureties.8 Where  securities  are  given  by  the  principal 
debtor  to  one  who  is  sole  surety  in  one  case  and  joint  surety 
in  others,  as  a  general  indemnity  for  the  surety's  liabilities, 
the  application  of  the  proceeds  of  such  securities  is  govern- 
ed by  the  maturity  of  the  obligations  the  payment  of  which 

1  New  Bedford  Savings  Inst    v.          *  McCune  v.  Belt,  45  Mo.  174. 
Fairhaven  Bank  9  Allen,  175;  Scrib-          B  Steel  v.   Dixon,  L.  R.  17  Cb.  D. 

ner  ».  Adams,  73  Me.  541.  825. 

1  Paul  v.  Berry,  78  111.  158.  «  Steele  v.  Mealing,  24  Ala.  285. 

1  McPherson  v.  Talbott,  5  Gill  &  J.          7  Wbipple  «.  Briggs,  30  Vt.  111. 
499.  •  Brown  v.  Ray,  18  N.  H.  102. 


S04  THE   PARTIES  TO   THE   INSTRUMENT. 

they  are  given  to  secure,  irrespective  of  the  fact  whether 
they  bear  the  name  of  the  surety  only  or  of  co-sureties  in 
addition  thereto.1  A  surety  who  is  also  a  creditor  may  ap- 
ply securities  first  to  the  payment  of  his  own  debt  as  against 
the  right  of  contribution  of  co-sureties  on  other  obligations.1 

§  236.  THE  RIGHT  OF  CONTRIBUTION  WHERE  PART 
ONLY  OF  DEBT  PAID. — The  equitable  right  of  contribution 
among  co-sureties  arises  also  in  cases  where  a  surety  has 
paid  more  than  his  share  of  the  principal  debt.  In  such 
case  the  paying  surety  is  entitled  to  recover  of  his  co-sure- 
ties the  amount  paid  in  excess  of  his  proportion  of  the  debt. 
This  equity,  however,  arises  only  where  the  surety  lias  paid 
such  an  amount  of  the  debt  as  to  make  it  clear  that,  as 
between  himself  and  his  co-sureties,  he  has  paid  all  he  ever 
can  be  required  to  pay.  When  this  is  ascertained  the  surety 
is  entitled  to  proceed  for  contribution  against  the  co-sureties 
for  the  excess  paid.8  Sureties  paying  but  a  portion  only  of 
the  liability  for  which  they  are  bound,  are  not  admitted  as 
against  the  creditor  remaining  unpaid  as  to  the  remaining 
part  of  the  debt,  in  an  action  of  contribution  against  co- 
sureties, to  the  benefit  of  collateral  securities  deposited  by 
the  debtor  with  such  co-sureties.  The  equitable  right  of 
the  creditor  is  preferred,  for  until  his  debt  is  fully  paid, 
sureties  who  have  paid  only  a  part  of  the  debt,  are  not  en- 
titled to  any  equitable  claim  upon  such  collaterals  for  reim- 
bursement.4 The  bar  of  the  statute  of  limitations  runs,  in 
an  action  for  contribution,  only  from  the  time  the  surety 
pays  in  excess  of  his  pro  rata  liability.1 


1  Whippier  Briggs,  30  Vt.  111.  «  Kelly    v.    Herrick,     181    Mass. 

»  Brown  v.  Ray,  18  N.  H.  102.  373. 

*  Morgan  v.  Smith,  70  N.  Y.  537 ;  *  Magruder  v.  Admire,  4  Mo.  App. 

Backus  v.  Coyne,  45  Mich.  584;  ex  133;  Lytle  t>.  Pope,  11  B.  Monr.  297; 

parte  Gifford,  6  Ves.  805;  Davis  v.  Daveis  v.  Humphreys,  6  M.  &  W. 

Humphreys,  6  M.  &  W.  158 ;  Lawson  153. 
9.  Wright,  1   Cox,  275;    ex    parte 
Snowden,  L.  R.  17  Ch.  D.  44. 


CONTRIBUTION  BY  SURETIES.  305 

§  237.  CONTRIBUTION  BETWEEN  ACCESSORY  SURETIES. 
— Where  two  bonds  with  sureties  are  given  for  the  perform- 
ance of  the  same  duty,  and  different  parties  are  sureties 
thereon,  any  one  of  such  sureties,  on  paying  the  debt,  is 
entitled,  in  equity  and  at  law,  to  contribution  from  the  co- 
sureties on  both  bonds.1  A  surety,  who  has  been  compelled 
to  pay  the  amount  of  a  judgment  against  the  principal 
debtor,  may  compel  contribution  from  sureties  on  a  second 
bond  for  the  same  principal,  which  has  been  executed  as 
security  for  the  same  obligation.1  Where  a  second  bond 
was  executed  by  a  guardian,  a  surety  upon  the  first,  who 
had  paid  a  deficiency  of  his  principal,  was  allowed  to  enforce 
the  rights  of  the  ward  as  to  the  second  bond  so  far  as  to 
compel  contribution  from  sureties  thereon.8  In  an  action 
by  A  against  B  an  attachment  on  B's  property  was  dissolved 
upon  a  bond  with  C  and  D  as  sureties.  A  recovered  judg- 
ment against  B,  which  not  being  paid,  suit  was  brought 
upon  the  bond,  and  judgment  was  recovered  against  B,  C 
and  D,  and  B  was  arrested  on  execution.  B  took  the  oath 
as  a  poor  debtor,  and  entered  into  recognizances,  with  E  as 
surety.  After  breach  thereof,  C  and  D  paid  the  judgment, 
and  brought  suit  in  the  name  of  A  against  E.  As  payment 
of  a  judgment  by  one  of  several  joint  debtors  extinguishes 
it  as  to  all,  the  claim  for  contribution  was  not  allowed.4 

A  surety  is  entitled  to  contribution  and  to  subrogation  as 
against  an  accessory  surety,  where  the  latter  enters  into  the 
obligation  for  the  purpose  of  gaining  time  or  other  favor  for 
the  principal  debtor,  but  in  such  a  manner  that  the  obliga- 
tion of  the  first  surety  is  not  discharged.5  Such  subrogation 

1  Deering  v.  Winchelsca,  2  B.  &  *  Commonwealth  v.  Cox,  36  Pa. 

P.  270;  Craythornc  v.  Swinburne,  14  St.  442. 

Ves.   160 ;   Mayhew  v.    Crickett,   2  *  Holmes  v.  Day,  108  Mass.  563; 

Swanst.  184;  Emicks  v.  Powell,  2  Kammatt    «.    Wyman,    9    Ib.  138; 

Strobh.  Eq.  196  ;   Chaffce  v.  Jones,  Brackett  v.  Winslow,    17  Ib.   153 , 

19  Pick.  260;   Norton  v.   Cooms,  3  Adams  v.  Drake,  11  Cush.  504. 

Denio,  130.  5  Schnitzel's  App.  49  Pa.  St.  23; 

*  Bosley  v.  Taylor,  5  Dana,  157.  Potts  ».  Nathans,  1  W.  &  S.  155 ; 
20 


306  THE  PARTIES  TO  THE  INSTRUMENT. 

and  contribution,  however,  does  not  follow  in  cases  where 
the  accession  of  a  surety  is  made  so  that  the  further  liability 
of  the  first  surety  is  extinguished.1  But  where  two  judg- 
ments having  been  obtained  in  part  against  the  same  person 
upon  the  same  liability,  the  last  being  upon  an  appeal  bond, 
and  the  suieiius*  bound  thereon  paid  the  last  judgment,  they 
were  given  the  rights  of  the  holders  of  the  first  judgment, 
notwithstanding  an  entry  of  satisfaction  had  been  made  on 
the  record,  as  against  a  purchaser  of  the  land  subject  there- 
to, who  was  not  a  purchaser  for  value,  without  notice,  in 
the  usual  course  of  business.9 


§  238.  THE  SURETY'S  ACTION  AT  LAW  FOR  CONTRIBU- 
TION.— The  right  to  an  action  at  law  of  one  of  two  or  more 
co-sureties  for  contribution  is  dependent  upon  the  fact  that 
the  surety  has  paid  the  judgment  or  debt.  Before  payment 
one  co-surety  has  no  right  of  action  against  another.  Up  to 
such  payment  the  co-sureties  stand  to  each  other  upon  a 
perfect  equality.3  The  recovery  of  a  surety  who  has 
paid  the  whole  debt  from  a  co-surety  in  an  action  at  law  for 
contribution,  is  limited,  unless  otherwise  provided  by 
statute,  to  an  aliquot  part  of  the  whole  debt,  regard  being 
had  to  the  number  of  sureties,  irrespective  of  their  solvency. 
If  any  of  the  co-sureties  are  insolvent,  equity  will  aid  the 
paying  surety  to  recover  a  larger  proportion  from  the 


Burns  ».  Huntington  Bank,  1  P.  &  Sandf.   Ch.  438 ;    Wilcox   v.  Fair- 

"W.  395.  Laven  Bank,  7  Allen,  270 ;  Clark  v. 

1  Webster's  App.  86  Pa.  St.  409.  Ely,  2  Saudf.  166;  Reeves®.  Pullian. 

9  Burgett  P.  Patton,   99  111.  288,  9  Baxter,  153.    Such  payments  may 

302;  Poe  v.  Darrah,   20  Ala.  238;  be  made  in  property,  money,  nego- 

Stilcs P.Eastman,  1  Kellcy  (Ga.)  205;  liable  paper  or  secuiitics,  and  where 

Wilson   V.    Wright,    7  Rich.    401 ;  it  is  received  in  full  satisfaction,  the 

Lintz  «.  Thompson,  1   Head,   456;  right  of  contribution  arises.      Ral- 

Smith  v.  Alexander,  4  Snced,  482.  ston  ».  Davis,  15  111.  159.    Davis  v. 

*  Kelly  v.  Herrick,  131  Mass.  373;  Emerson,  17  Me.  64;    Bachclder  ». 

Ohio  Life  Ins.  Co.  v.  Ledyard,  8  Fiske,  17  Mass.  464. 
Ala.  866;   Ten  Eyck •  v.  Holmes,  3 


CONTRIBUTION   BY   SURETIES.  307 

solvent  sureties,  that  the  burden  may  be  borne  equally.1 
Where,  after  the  debt  has  been  discharged  by  the  sureties, 
money  is  paid  by  the  principal  to  one  surety  in  order  to 
reimburse  both,  the  co-surety,  upon  default,  may  bring  his 
action  at  law  against  the  surety  receiving  the  money  as  for 
money  had  and  received.  Equity  courts  will  not  take  juris- 
diction thereof,  as  the  remedy  is  complete  at  law.* 

A  co-surety  sued  at  law  may  show  in  defense  that  the 
surety  paying  the  debt  received  securities  from  the  princi- 
pal debtor,  and  has  converted  them  into  money.  The  pro- 
ceeds thus  retained  by  the  surety  are  treated  as  a  payment 
pro  tanto  of  the  debt.1  Nor  is  it  any  defense  to  an  action 
for  contribution  between  co-sureties  that  the  plaintiff,  who 
paid  the  debt,  did  not  avail  himself  of  the  defense  of  usury, 
if  he  had  no  knowledge  thereof.4  And  a  party  who  has 
signed  a  note  as  surety  for  one  who  is  himself  only  a 
surety  for  the  principal  maker,  is  not  liable  in  a  suit  for 
contribution.6 

1  Griffin  v.    Kelleher,    132    Mass.  Swinburne,  14  Ib.  160.    The  right  is 

82 ;   Brigden  v.  Cheever,    10  Mass.  supported  as  against  the  estate  of 

450,454;  Chaffee  v.  Jones,  19  Pick,  the  deceased  co-surety.     Conover  v. 

260,  265 ;   Wood  v.  Leland,  22  Ib.  Hill,  76  111.  342. 

503,  506  ;  Caity  v.  Holmes,   16  Gray,  9  Allen  v.  Wood,  3  Ired.  Eq.  386. 

127;  Morgan  v.  Smith,  70  N.  Y.537;  «  Paulin  t>.  Kaighn,  29  N.  J.  L. 

Dodd  0.  Winn,  27  Mo.  503;  Magru-  480. 

der  v.  Admire,   4  Mo.  App.    133 ;  4  Warner  v.    Morrison,  3    Allen, 

Cowell  v.  Edwards,  2  B.  &  P.  268;  566. 

Brown  v.  Lee,  6  B.  &  C.  689;  Batard  6  Robertson  ».  Detherage,  82  I1L 

v.  Hawes,  2  El.  &  Bl.  287;  Wright  511;  Salyers  t>.  Ross,  15  Iiid  130 
».  Hunter,  5  Yes.  792j  Cray thorne  v. 


308  THE  PABTIES   TO  THE  INSTRUMENT. 


CHAPTER  XXIV. 

THE  DISCHARGE  OF  THE  SURETY. 

§239.  The  surety's  discharge,  upon  creditor's  surrender  or  loss  of  collat- 
erals. 

240.  The  rule  as  to  collateral  securities  limited  and  illustrated. 

241.  Mere  inaction  of  creditor  as  to  collateral  securities,  no  discharge. 

242.  Acceptance  of  collateral  security,  without  more,  no  discharge. 

243.  Acceptance  of  new  security  of  principal,  discharges  surety. 

244.  Discharge  by  misrepresentations  as  to  collateral  securities  by  creditor. 

245.  Discharge  of  surety  by  changes  in  the  instrument. 

246.  Surety  when  not  released  in  cases  of  forgery. 

247.  Release  of  surety,  by  extension  of  time  to  principal. 

248.  When  surety  not  released,  by  extension  of  time. 

249.  Like  rules  as  to  sureties  upon  specialties. 

250.  Rights  against  surety  reserved  upon  release  of  principal  or  co-surety. 

251.  Discharge  of  deceased  surety's  estate,  as  to  creditors. 

252.  No  discharge  of  such  estate,  as  to  co-sureties. 

§  239.  SURETY'S  DISCHARGE,  UPON  CREDITOR'S  SUR- 
RENDER OR  LOSS  OF  COLLATERALS. — A  surety  is  discharged 
from  his  liability  on  the  principal  obligation  by  any  affirma- 
tive act  of  the  creditor  by  which  the  terms  of  the  con- 
tract of  suretyship  are  changed  to  the  prejudice  of  the 
surety,  without  his  consent.  Such  discharge  results  from  a 
valid  and  definite  extension  of  time,  or  by  unauthorized 
changes  in  the  instrument,  or  by  new  duties  and  responsi- 
bilities imposed  upon  the  principal,  or  by  the  conduct  of  the 
creditor  in  relation  to  collateral  securities  received  by  him 
from  the  principal  debtor  to  secure  the  payment  of  the  debt. 
A  creditor  holding  collateral  securities  is  chargeable  with  a 
trust  concerning  the  same  for  the  benefit  of  the  surety, 
where  he  has  notice  of  the  existence  of  such  relation  as  be- 
tween the  parties  to  the  note.  By  his  voluntary  accept- 


THE  SURETY  S   DISCHARGE. 


309 


ance  of  such  securities,  the  creditor  assumes  responsibilities 
in  relation  thereto  not  ordinarily  undertaken  by  the  holder 
of  paper  upon  which  are  the  names  of  a  principal  and  sure- 
ty. The  personal  obligation  of  the  surety  to  pay  the  note 
upon  default  of  the  principal,  is  not  affected  by  the  receipt 
of  such  collateral  securities  by  the  holder  from  the  debtor, 
but  the  interest  of  the  surety  in  the  proper  management 
and  realization  of  such  securities  is  recognised,  at  law  and 
If  the  creditor  by  an  act  of  a  positive  character, 


n 

or  by  his  gross  negligence  or  bad  faith,  and  without  the 
knowledge  and  consent  of  the  surety,  releases,  surrenders, 
impairs,  destroys,  or  fraudulently  transfers  such  collateral 
securities  so  as  to  defeat  any  claim  of  the  surety,  upon  pay- 
ment of  the  debt,  to  be  subrogated  thereto  for  his  indemni- 
fication, the  surety  is  discharged  to  the  extent  of  his  actual 
loss,  at  any  rate,  and  of  his  whole  liability  in  cases  of  fraud  or 
negligence  so  gross  as  to  raise  a  presumption  of  fraud.1  And 


1  Guild  v.  Butler,  127  Mass.  388 ; 
Wilcox  0.  Fairhaveu  Bank,  7  Allen, 
272;  Merchants'  Bank  0.  Baker,  4 
Met.  164;  Eastman  0.  Foster,  8  Ib. 
19 ;  Stewart  0.  Davis,  18  Ind.  74; 
Cheesebrough  0.  Millard,  1  Johns. 
Ch.  409 ;  Griswold  v.  Jackson,  Ib. 
430;  Hayes  v.  Ward,  4  Ib.  123  ;  In- 
galls  v.  Morgan,  10  N.  Y.  178;  Ches- 
ter 0.  Kingston  Bank,  16  Ib.  336; 
Lewis  v.  Palmer,  28  Ib.  271:  Super- 
visor v.  Otis,  62  Ib.  88;  New  Hamp- 
shire Savings  Bank  0.  Colcord,  15 
N.  H.  119 ;  New  London  Bank  v. 
Lee,  11  Conn.  112;  Belcher  v.  Hart- 
ford Bank,  15  Ib.  480;  Pratt's  case, 
16  La.  Ann.  357;  Priest  v.  Watson, 
75  Mo.  315;  Clopton  v.  Spratt,  52 
Miss.  251 ;  Nelson  0.  Munch,  28 
Minn.  314;  Springer  0.  Toothaker, 
42  Me.  381;  Moore  0.  Gray,  26  Ohio 
St.  525;  Waite  0.  Dennison,  51  111. 
319;  Dillon  0.  Russell,  5  Neb.  484; 
Smith  0.  McLeod,  3  Ired.  Ch.  390; 


Miller  0.  Ord,  1  Pa.  St.  382;  Clow  0. 
Derby  Coal  Co.,  98  Ib.  432 ;  Neff's 
App.  9  W.  &  S.  36;  Kurd  0.  Spencer, 
40  Vt.  581;  Austin  0.  Belknap.  54  Ib. 
495;  Brinton  0.  Gerry,  7  Bradw.  238; 
Kirkpatrick  0.  Howk,  80  111.  122; 
Rogers  0.  School  Trustees,  46  Ib. 
428,  434;  Phares  0.  Barbour,  49  Ib. 
370;  Darst  0.  Bates,  95  Ib.  513; 
Cherry  0.  Miller,  7  Lea,  305.  The 
rule  is  applied  to  indorsers:  Ross  0. 
Jones,  22  Wall.  576;  Bank  0.  Hatch, 
6  Pet.  258;  McLemore  0.  Powell,  12 
Wheat.  556;  Bank  0.  Haurick,  2 
Story,  416;  Wood  0.  Bank,  9  Cow. 
194;  Newcomb  v.  Raynor,  21  Wend. 
108.  Aldrich  0.  Cooper,  8  Ves.  388, 
395;  Wright  0.  Morlcy,  11  Ib.  22; 
Capel  0.  Butler,  2  Sim.  &  St.  457; 
Strange  0.  Fooks,  4  Gift.  412;  Wulff 
0.  Jay,  L.  R.  7  Q.  B.  756;  Rees  v. 
Barrington,  2  W.  &  T.  Lead.  Cas. 
Eq.  1003.  And  courts  of  law  will, 
in  proper  cases,  apply  the  rule. 


310  THE   PARTIES  TO  THE   INSTRUMENT. 

under  the  tendency  of  modern  legislation  and  decisions,  the 
surety  is  entitled  to  interpose  in  an  action  at  law  by  the 
creditor  the  like  defenses,  as  above  stated,  as  in  equity. 
His  discharge  results  in  the  one  case  equally  as  in  the  other.1 
The  like  rule  applies  where  a  person  pledges  his  proper- 
ty as  collateral  security  for  the  performance  of  the  contract 
of  a  third  person.  Such  property  stands  in  the  position  of 
a  surety,  and  any  changes  in  the  contract  of  suretyship 
which  would  discharge  a  surety  discharges  the  property" 
held  as  collateral  security.1  So,  where  land  subject  to  a 
judgment  lien  is  sold  by  the  judgment  debtor  to  a  third 
person  for  its  full  value,  it  is  regarded  as  standing  in  a  sure- 
tyship relation,  and  is  subject  to  be  discharged  from  such 
lien  like  any  other  collateral  security  by  the  affirmative  acts 
of  the  creditor  or  by  his  gross  negligence.8 

§  240.  THE  RULE  AS  TO  COLLATERAL  SECURITIES 
LIMITED  AND  ILLUSTRATED. — A  limitation  imposed  upon 
the  rule  stated  under  which  a  surety  is  discharged  by  any 
affirmative  act  of  the  creditor  surrendering,  impairing  or 
destroying  the  collateral  securities  held  by  him  from  the 
principal  debtor  is,  that  such  security  must  be  a  mortgage, 
pledge,  lien,  or  some  right  to  or  interest  in  property,  which 

Kirkpatrick  v.  Howk,  80  111.  122 ;  •  Rowan  ®.  Sharp  Rifle  Man.  Co., 

Rogers  v.  School  Trustees,  46  111.  33  Conn.  18,  22,  24;  White  v.  Ault, 

428;  People  v.  Jansen,  7  Johns  332;  19  Geo.  551;  Christener  v.  Brown,  16 

Chester  t>.  Bank  of  Kingston,  16  N.  Iowa,  130;  Ryan  v.  Shaw,  14  111.  20; 

Y.  337;  Guild  v.   Butler,  127  Mass.  Crawford  v.  Richeson,  101  Ib.   351; 

386;  Uaker  v.  Briggs,  8  Pick.  122  ;  Barnes  e.  Mott,  64  N.  Y.  377;  Deni- 

Carpenter    %.    King,    9    Met.    311;  son  «.  Gibron,  24  Mich.  187;  Union 

Home  v.  Bodwell,  5  Gray,  457.  Bank  v.  Ewan,  18  Miss.  333;  Robin- 

1  People  v.  Jansen,  9  Johns.  332;  son  v.  Mngee.  1  Ves.  Sr,  251;  Royal 

Baker  v.  Briggs,  8  Pick.  121;  Rogers  C.  Bank  v.  Payne,   19  Grant's  Ch. 

«.  School  Trustees,  46  111.  428;  Kirk-  180. 

Patrick  v.  Howk,  80  Ib.  122 ;   Ncff 's  «  Barnes  v.   Mott,  64  N.  Y.  377; 

App.    9    W.  &  S.  36;    Mayhew  v.  Lowery  v.  McKinney,   68  Pa.   St. 

Crickett,  2  Swans.t.  185:  Philpott  v.  294;  Leffingwell  v.  Fryer,  21  Wis. 

Briant,  4  Bing.  117;  Samuel  v.  How-  392. 
arth,  2  Her.  287. 


THE  SURETY'S  DISCHAKGE.  311 

a  creditor  can  hold  in  trust  for  the  surety,  and  to  which  the 
surety,  if  he  pay  the  debt,  can  be  subrogated  ;  and  the 
right  to  apply  and  to  hold  must  be  absolute.1  Nor  will  it 
apply  to  a  statutory  remedy,  such  as  a  right  of  distraint.  Al- 
though after  payment  of  the  debt  by  the  surety,  he  is 
subrogated  to  this  right,  as  to  the  unexpired  term  of  the 
lease.*  Nor  to  the  surrender  of  securities  which  have  be- 
come void  or  valueless.1 

The  surety  is  discharged  where  collateral  securities  held 
by  the  creditor  from  the  principal  debtor  are  voluntarily 
returned  without  the  consent  of  the  surety,  at  least  to  the 
value  of  such  collateral  securities.4  And  where  a  debtor 
executes  a  mortgage  or  deed  of  trust,  or  other  security,  for 
the  benefit  of  the  creditor,  the  trust  thus  created  for  the 
sureties,  bound  for  the  payment  of  the  debt,  may  not  be 
discharged  by  any  surrender  or  act  in  connection 
with  such  securities  discharging  the  same,  without  the  con- 
sent of  the  surety.5  The  surety  is  released,  if  a  right  of 
subrogation  to  securities  be  absolutely  defeated  by  the 
supine  negligence  of  a  creditor  to  comply  with  statutory 

1  Glazier  «.  Douglass,  32  Conn.  399;  App.  9  W.  &  S.  36 ;  Holt  «.  Body,  18 

Clow  v. Derby  Coal  Co.  98  Pa.St.  432;  Pa.  St.  207;  Everly  v.  Rice,  20  Ib. 

Phares  t>.  Barbour,  49  111.  370:  Bill-  297;    Denny    t>.  Lyon,   38  Ib.  98; 

ings  «.  Sprague,  Ib.  509;  Waite  v.  Commonwealth  v.  Vanderslice,  8  S. 

Dennison,   51   Ib.  319 ;    Loomis  v.  &  R.  452 ;    Clopton    v.   Spratt,    52 

Fay,  24  Vt.  240.  Miss.  251.    And  where  the  creditor 

*  Hull  v.  Hoxsey,  84  111.  616.  permits  the  debtor  to  take  and  sell 

3 Union  National  Bank*.  Crowley,  such  security,  and  retain  the  pro- 

27  La.  Ann.  202.  ceeds.  Rablew.  Newman,  7  Bush,  584. 

4  Kirkpatrick  v.  Howk,  80  111.  122;  The  rule  is  not  affected  even  by  the 

Rozet    v.  McClellan,    48    Ib.    345;  substitution  of  security  of  greater 

Cherry  v.  Miller,  7  Lea,  305 ;  Sprin-  value  than  that  surrendered,  without 

ger  ®.  Toothaker,  43  Me.  381;  Austin  the  consent  of  the  surety.    N.  H. 

«.  Belknap,  54  Vt.  495 ;   Taylor  v.  Savings   Bank  ».  Colcord,  15  N.  H. 

Jeter,  23  Mo.  244 ;  Saline  County  v.  119. 

Bull,  65  Ib.  63 ;  Perrine  v.  Firemen's  '  Clow  v.  Derby  Coal  Co.  98   Pa. 

Ins.  Co.  22  Ala.  575 ;  Pittsburgh  v.  St.  432 ;  Phares  v.  Barbour,  49  111. 

Thompson,  3  Grant's  Gas.  114 ;  Phil-  370;  Billings  v.  Sprague,  Ib.  509; 

bricks  «.  McEwen,  29  Ind.  347;  Bar-  Waite  v.  Dennison,  51  Ib.  319. 
row  v.  Shields,  13  La.  Ann.  57;  Neff'a 


312  THE  PARTIES   TO   THE   INSTRUMENT. 

requirements  requisite  to  its  validity  and  preservation.1 
Or  where  such  collateral  securities  have  been  received  by 
the  creditor  after  the  maturity  of  the  debt  and  the  proceeds 
thereof  misappropriated  to  other  debts  to  the  injury  and 
loss  of  the  surety.1  The  surety  is  also  discharged  where 
the  creditor  fraudulently  treats  such  securities  as  his  own 
so  that  the  surety  is  damnified,*  or  has  released  the  princi- 
pal debtor  from  a  judgment,  entered  against  him  or  sus- 
pended his  right  of  action  against  him  upon  the  principal 
debt  without  the  surety's  consent.4 

§  241.  MERE  INACTION  OF  THE  CREDITOR  AS  TO  COL- 
LATERAL SECURITIKS  NO  DISCHARGE. — In  the  absence  of  an 
express  agreement  to  use  diligence,  or  of  such  special  cir- 
cumstances as  to  render  prompt  action  of  the  creditor  an 
absolute  duty,  the  mere  inaction  or  passive  delay,  or  omis- 
sion of  the  creditor  to  enforce  the  collection  of  collateral 
securities  held  by  him  from  the  principal  debtor,  is  not 
sufficient  of  itself  to  discharge  or  release  a  surety  from  his 
obligation  to  pay  the  debt  upon  default.*  Nor  is  a  failure 

1  Curry  t>.  Mack,  90  111.  606 ;  Rog-  Appeal,  102  Penn.  St.  441;  Board 

era  v.  School  Trustees,  46  Ib.  428  ;  of  Supervisors  v.  Otis,  62  N.  Y.  88; 

Burr  t>.  B  yer,  2  Keb.  265;  Phil-  Clark •«.  Sicklcr,  Ib.  231  ;  Thompson 

brooks  v.  McEwen,  7  Bush,  5C4;  «.  Hall,  45  Barb.  214;  Fullon  v. 

Ducker  t>.  Rapp,  67  N.  Y.  464;  Lang  Matthews,  15  Johns.  433;  Reynolds 

e.  Brevard,  3  Strobh.Eq.  59;  Strange  v.  Ward,  5  Wend  501;  Marsh  v. 

v.  Fooks,  4  Giff.  412  ;  Wulff  v.  Jay,  Dunkel,  25  Hun,  167;  Cherry  v.  Mil- 

L.  R.  7  Q.B.756;  Rainbows  Juggins,  ler,  7  Lea,  305;  Clopton  v.  Spratt, 

L.  R.  5  Q.B  D.  138;  Rees  v.  Barring-  52  Miss.  251  ;  Dundas  ®.  Sterling,  4 

ton,  2  W.  &  T.  Lead.  Cos.  1003.  Pa.  St.  73;  Miller  t>.  Knight,  7  Baxt. 

'Smith  v.  Clopton,  48  Miss.  66;  127;  Richardson  v.  Ins.  Co.27Gratt, 

Rosborough  t>.  McAlilcy,  10  S.  C.  749;  Pbarr  v.  McHugh,  32  La.  Ann. 

235;  Chaffee  «.  Talliaferro,  58  MJss.  1280;  Pearl  v.  Williams,  11  111.  253; 

544.  Villars  v.  Palmers,  67  Ib.  204;  Rozet 

1  Clopton  v.  Spratt,  52  Miss.  251.  v.  McClellan,  48  Ib.  345;  Orme  v. 

4  Case  v.  Hawkins,  53  Miss.  702;  Young,  Holt,  84;  Goring  «.  Ed- 

Pomeroy  v.  Tanner,  70  N.  Y.  547,  monds,  6  Bing.  94;  Strong  t>.  Foster, 

cases  of  indorscrs.  17  C.  B.  216;  Bank  v.  Beresford,  6 

'  Winton  v.  Little,  94  Pa.  St.  64;  Dow.  238;  Holl  v.  Hadley,  2  A.  &  E. 

Est.  of  Bush.,  12  Phila.  53;  Kindt's  758;  Eyre  «.  Everett,  2  Russ.  381. 


THE  SURETY'S  DISCHARGE.  313 

of  the  holder  of  a  negotiable  promissory  note,  having  a  lien 
on  personal  property  of  the  principal  debtor,  to  enforce  the 
same  a  discharge  of  the  surety,  although  the  security  has 
become  worthless.1  The  failure  of  a  creditor  to  record  a 
mortgage  given  by  the  principal  debtor  as  security  for  the 
debt,  no  positive  act  of  the  creditor  occurring  but  only 
mere  delay  and  omission,*  or  to  revive  a  judgment  against 
the  principal  debtor,  so  that  a  lien  on  land  is  lost,  and  the 
property  passed  into  the  hands  of  subsequent  creditors,  in 
the  absence  of  an  express  agreement  that  it  should  be  kept 
alive  for  the  benefit  of  the  surety,"  will  not  operate  as  a  dis- 
charge. 

A  surety  is  not  discharged  even  where  the  creditor  has 
given  positive  order  to  delay  enforcing  an  execution  against 
the  principal  debtor.4  Nor  by  a  failure  to  levy  an  execution 
upon  the  property  of  the  principal  debtor,  although  by  reason 
thereof  it  is  lost  to  the  surety,  unless  such  surety  has  required 
the  creditor  to  enforce  the  same  by  proper  notice.8  If  by 
reason  of  delay  in  enforcing  an  execution  the  principal 
debtor  is  enabled  to  remove  his  property  beyond  the  reach 
of  process,  the  surety  is  not  discharged,  in  the  absence  of 
fraud  or  collusion  on  the  part  of  the  creditor.8  A  discharge 
of  the  principal  debtor,  taken  on  a  ca.  sa.,  is  not  a  release  of 

The  same  rule  is  applied  in  the  case  McEwen,  28  Ind.  347;  Lang  v.  Brev- 

of    indorsers.      Ross    t>.  Jones,  22  ard,  3  Strobh.  Eq.  59;  Hampton  «. 

Wall.  576;  Bank  v.  Myers,  1  Bail.  Levy,   1    McCord     Ch.    107.     See 

418;  Gwin  v.   Moore,  79  Ind.  103;  Schroeppel  t>.  Shaw,  3  N.  Y.  459. 

Powell  v.   Waters,    17  Johns.  179  ;  •  Wintou  v.  Little,   94  Pa.  St.  64; 

Stafford  «.  Yates,  18  Ib.  329;  Bank  U.  S.  v.  Simpson.  3  P.  &  W.  437. 

«.  Ives,  17  Wend.  502;  Bank  v.  Rol-  But  the  release  of  a  principal  debtor 

lins,    13  Me.  205;  Sterling  v.  Mari-  from  a  judgment  will  release  the 

etta  etc.  Co.  11  S.  &  R.  182 ;  Ken-  surety.    Anthony  ®.  Capel,  53  Miss, 

nard  v.  Knott,  4  Mann.  &  G.  474 ;  350.    Or  where  it  is  put  out  of  the 

Trimble  v.   Thorne,  16  Johns.  159  ;  power  of  the  surety  to  collect  the 

Beebe  e.  Bank,  7  W.  &  S.  375;  Phil-  same.  Ducker  v.  Rnpp,  67  N.  Y.464. 

pott  v.  Briant,4  Bing.  717.  *  McNeilly  v.  Cooksey,  2  Lea,  39. 

1  Fuller  fl.Tomlinson,  57  Iowa,  111.  8  Thompson  v.  Robinson,  34  Ark. 

*  New  York  Nat.  Exchange  Bank  44. 

v,  Jones,  9  Daly,  248;  Philbrook  v.  «  McKennyc.  Waller,  1  Leigh,  434 


"314  THE   PARTIES   TO   THE   INSTRUMENT. 

a  surety  .'  A  failure  to  sell  negotiable  bonds  deposited  as 
collateral  security  for  the  payment  of  a  negotiable  promis- 
sory note,  upon  default  in  the  payment  of  the  principal 
obligation,  and  the  subsequent  depreciation  in  value  there- 
of, forms  no  defense  for  a  surety  upon  such  note,  when  sued 
thereon.*  Nor  will  the  failure  of  a  bank  to  appropriate 
funds  of  a  principal  debtor  on  deposit  to  the  payment  of  a 
note  at  its  maturity,  be  a  discharge  pro  tan  to  of  a  surety 
upon  the  principal  obligation.8  A  material  change  in  the 
principal  instrument  discharging  a  surety,  the  result  is  not 
affected  by  the  fact  that  such  surety  holds  collateral  securities 
from  the  principal.4  And  although  the  estate  of  a  deceased 
surety  is  not  liable  upon  his  contracts  of  suretyship,  resort 
is  allowed  to  any  collateral  securities  given  to  such  deceased 
surety  by  the  principal  debtor,  and  remaining  in  Iris  posses- 
sion at  the  time  of  his  decease.6 

§  242.  ACCEPTANCE  OP  COLLATERAL  SECURITY,  BY 
CREDITOR,  NO  DISCHARGE.  —  The  receipt  by  the  creditor 
from  the  principal  debtor  of  the  negotiable  promissory  note 
of  a  third  person,  indorsed  where  required,  as  collateral 
security  for  the  payment  of  his  own  note,  the  latter  bearing 
also  the  name  of  a  surety,  does  not  affect  the  right  of  such 
creditor  to  an  action  at  law  against  the  surety  upon  the 
principal  note,  upon  default  of  payment  and  proper  notice. 
The  fact  that  such  collateral  note  matures  at  a  time  subse- 
quent to  the  principal  note,  raises  no  presumption  of  any 
agreement  on  the  part  of  the  creditor  to  extend  the  time  of 
payment  of  the  principal  note,  and  the  surety  is  not  released. 
His  obligation  is  entirely  independent  of  any  promise  con- 
tained in  the  collateral  paper.  The  receipt  of  such  collateral 
securities  by  the  creditor  from  the  principal  debtor  is  a 
benefit  to  the  surety,  as  the  latter,  upon  payment  of  the 

1 U.     8.     t>.    Stanbury,     1    Pet.  111.  599 ;  Nat.  Bank  v.  Smith,  66  N. 

673.  Y.  271. 

•  Cherry  t>.  Miller,  7  Lea,  805.  «  Rounswell  v.  Wolf,  47  Wis.  253. 

•  Voss  t>.  International  Bank,  83         •  Crosby  v.  Crafts,  69  N.  Y.  607. 


THE  SURETY'S  DISCHAUGE.  315 

debt,  becomes  entitled  to  subrogation  thereto,  and  to  enforce 
the  same  for  his  own  relief.1  Where  such  collateral  secur- 
ities mature  before  maturity  of  the  principal  note,  the  surety 
may  require  the  creditor  to  apply  the  money  collected  there- 
on, in  payment  pro  tanto  of  the  debt  and  to  his  relief.*  In 
states  where  the  indorsee  of  negotiable  paper  as  collateral 
for  an  antecedent  debt,  without  any  further  consideration, 
is  not  a  holder  for  value,  in  the  usual  course  of  business,  the 
indorsement  of  such  paper  to  a  creditor  holding  a  principal 
note,  upon  which  a  surety  is  bound,  will  not  release  such 
surety,  as  no  presumption  arises  by  the  receipt  thereof  of 
any  extension  of  time  upon  the  principal  note.'  A  valid 
agreement  for  an  extension  of  time,  made  upon  the  indorse- 
ment and  delivery  of  collateral  securities,  and  i'n  considera- 
tion thereof,  without  the  surety's  knowledge  and  consent, 
discharges  the  latter.4  A  principal  maker  of  a  note,  with- 
out the  knowledge  and  consent  of  the  surety,  borrowed 
money  upon  a  new  note,  also  signed  by  sureties,  for  the  pur- 
pose of  taking  up  the  first  note,  and  upon  an  agreement  to 
indorse  the  same  to  the  sureties  on  the  second  note  as  col- 

1  Fireman's  Ins.  Co.  v.  Wilkinson,  117;  Globe  Ins.  Co.  v.  Carson,  31  Mo. 

35  N.  J.  Eq.  160;  Hayes  v.  Wells,  34  218;  Oxford  Bank  v.  Lewis,  8  Pick. 

Md.  512;  Brengle  «.  Bushey,  40  Ib.  458.  Fringe.  Clarkson.l  B.&  C.  14; 

141 ;  Thurston  v.  James,  6  R.  1. 103;  Twopenny  v.  Young,  3  B.  &  C.  208; 

Austin  v.  Brooks,  31  Vt.  64;  Steven-  Bedford  «.  Deakin,  2  B.  &  A.  210 ; 

son  D.  Austin.  3  Mete.  474;    Bangs  Perfect  v.  Musgrave,  6  Price,  111. 

v.  Strong,  10  Paige,  11;  Neimcewicz  Unless  it  is  given  as  consideration 

1).  Gahn,  3  Paige,  614;  Van  Etten  v.  for  an  extension  of  time.     Liquidat- 

Trouden,  67  Barb.  342 ;    Remsen  v.  ors  etc.  v.  Same,  L.  R.  7  H.  L.  348. 

Graves,  41  K  Y.  471;  Wood  v.  Rob-  2  Lincoln  v.  Bassett,  23  Pick.  154. 

inson,  22  Ib.  564;  Cary  v.  White,  52  a  United  States  v.  Hodge,  6  How. 

N.  Y.  138;  Hubbard  «.  Gurney,  64  279;  Weakly  v.  Bell,  9  Watts,  280; 

N.    Y.    457;    Norton    <o.    Soule,  2  Gahn  v.  Niemcewicz,  11  Wend.  312; 

Greenl.  341 ;  Lincoln  D.  Bassett,  23  Day  v.  Leal,  14  Johns.  404 ;  Elwood 

Pick.  154;  United  States  v.  Hodge,  v.  Diefendorf,    5  Barb.    398,    409; 

6  How.   279;    Cruger  v.  Burke,   8  Sigourney  «.  Witherell,   8  Met,  564; 

Tex.  66;  s.  c.  11  Ib.  694;  Wade  v.  Wallace  «.  Agry,    4    Mason,    336; 

Stanton,   6  Miss.  631.      The  same  Pring  v.  Clarkson,    1   B.  &  C.  14; 

rule  is  applied  to  inclorsers :     Mo-  Ernes  v.  Widowson,  4  C.  &  P.  151. 

hawk  Bank  v.  Van  Home,  7  Wend.  *    *  Greene  v.  Bates,  74  K  Y.  333. 


316  THE  PARTIES  TO  THE  INSTRUMENT. 

lateral  security.  The  money  thus  obtained  having  been 
paid  in  discharge  of  the  first  note,  the  surety  thereon  was 
discharged,  and  no  enforcement  thereof  as  against  him  was 
allowed  the  sureties  upon  the  second  note,  upon  default, 
although  an  action  against  the  maker  was  allowed.1 

§  243.  ACCEPTANCE  OF  NEW  SECURITY  OF  PRINCIPAL 
DISCHARGES  SURETY. — The  rule  that  an  extension  of  the 
time  of  payment  of  the  debt  by  the  creditor  to  the  principal 
debtor,  without  the  knowledge  and  consent  of  the  surety, 
will  discharge  the  latter,  is  applied  where  the  holder  of  a 
negotiable  promissory  note  receives  a  new  note  from  the 
principal  debtor,  payable  at  a  future  day.  The  acceptance 
of  such  new  note  operates  to  suspend  the  right  of  action 
upon  the  principal  demand  until  the  maturity  of  the  note, 
being  a  sufficient  consideration  for  the  extension  of  time 
thereon.*  It  is  necessary  in  order  to  bring  the  surety  within 
the  rule,  either  that  the  new  note  should  be  taken  in  pay- 
ment of  the  first  note,  or  that  the  time  of  payment  of  the 
latter  should  be  extended  for  a  definite  period.1  The 
rule  is  applied  where,  on  the  maturity  of  the  original  obli- 
gation, the  principal  debtor  pays  a  portion  of  the  debt, 
giving  a  new  note  for  the  balance,  the  creditor  retaining 

1  Greening  v.  Patton,  51  Wis.  146.  Hill  0.    Bostwick,    10    Yerg    410 ; 

*  Hubbard  v.  Gurney,   64  N.  Y.  Gahn  «.  Niemcewicz,  11  Wend  312; 

457;  Fellows  c.   Prentis,    3  Denio,  Hard  v.  Little,  12  Mass.  502;  Baker 

510;  Bangs  v.  Moslier,  23  Barb.  478;  v.  Walker,  14  M.  &  W.  465.    The 

Dorlon  v.  Christie,  39  Ib.  610;    Al-  mere  receipt  of  a  new  note  from  the 

bany  etc.  Co.  «.  Devendorf,  43  Ib.  principal,  without  a  valid  agreement 

444;  Place  v.  Mcllvain,  38  N.  Y.  96;  to  extend  the  time  of  payment  of 

Linn  v.  Neldon,  23  N.  J.  Eq.   109;  the  first  note,  does  not  discharge  the 

Thomson  v.  Bowne,  39  N.  J.  L.,  2;  surety.       El  wood  v.  Diefendorf,  5 

Paulin  v.  Kaighn,  27  Ib.  503;  Bell  v.  Barb.  398 ;  Cary  v.  White.  52  N.  Y. 

Martin,  18  Ib.  167;  Grover  v.  Hop-  138,  but  see  Hubbard  v.  Gurney.  su- 

pock.  26  Ib.  191 ;  Sayre  t>.  King.  17  pra   Moss  v.  Hall,  5  Exch.  50  (Parke, 

W.  Va.  562;  First  Nat.  Bank  v.  Lea-  Baron). 

vitt,  65  Mo.  562.  The  rule  is  applied         •  Hough  v.  Etna  Life  Ins.  Co.,  57 

in  favor  of  indorsere:  Wood  v.  Jeff-  111.  118. 
ereon  County  Bank,   9  Cow.  194; 


TUB  SURETY'S  DISCHARGE.  317 

possession  of  the  old  note.  The  sureties  thereon  are  dis- 
charged, as  the  creditor,  by  accepting  the  new  note,  has 
made  a  valid  and  definite  extension  of  the  time  of  payment 
to  the  principal  debtor.1  The  omission  to  redeliver  such 
old  note  does  not  of  itself  change  or  affect  the  contract  of 
extension  of  time  for  payment,  nor  render  the  same  invalid.* 
Sureties  upon  the  original  note,  however,  are  not  discharged, 
where  the  new  note  is  void  on  account  of  forgery,  although 
the  other  be  destroyed.* 

§  244.  DISCHARGE  BY  MISREPRESENTATIONS  AS  TO 
COLLATERAL  SECURITIES  BY  CREDITOR. — Where  a  creditor 
or  the  holder  of  a  promissory  note,  signed  by  a  principal  and 
surety,  induces  the  latter,  by  fraudulent  misrepresentations 
about  the  surety's  liability,  to  release  or  forego  the  obtain- 
ing of  collateral  security  or  other  indemnity  from  the  prin- 
cipal debtor,  and  the  surety  thereby  suffers  loss  or  damage, 
such  creditor  or  holder  is  estopped  as  against  such  surety, 
to  enforce  any  claim  to  the  extent  of  such  loss  or  damage.4 
The  failure  to  communicate  a  fact  to  a  surety,  or  a  misrep- 
resentation thereof,  made  in  respect  to  the  subject  matter  of 
the  contract  of  suretyship,  in  order  that  the  rules  of  equita- 
ble estoppel  may  be  invoked  to  protect  the  surety,  must 
have  the  effect  necessarily  of  increasing  the  responsibilities 
of  the  surety,  or  operate  to  his  prejudice  and  loss.*  The 

1  Andrew  v.  Marrett,  58  Me.  540;  Schofield  t>.  Tcmpler,  4  DeG.  &  J. 

Fellows  v.   Prcntiss,   3  Denio,  512;  429. 

Putnam  v.  Lewis.  5  Johns.  389;  and  4  High  v.  Cox,  55  Geo.  662;  Whit- 

to  indorscrs,  Bailey  v    Baldwin,  7  aker  v.  Kirby,  54  Ib.  277;  Carpenter 

Wend.  280;  Mohawk  Bank  v.  Van  v.  King,  9 Met. 511;  Bank®. Haskell, 

Home,   Ib.  117.     Gould  v.  Robson.  51  N.  H.  116;  Thomburg  v.  Harden, 

8  East,  576;    Stedmau  v.  Gooch,  \  33  la.  380;  White  v.  Walker,  31  111. 

Esp.  N.  P.  3.  422;    Booth  v.   Storrs,   75  111.  438; 

*  Hubbard  v.   Gurney,  64  N.   Y.  Roper  v.  Sangamon  Lodge,  91  111. 

457;  Hart  v.  Hudson,  6  Duer,  304;  518;  Baker  v.  Briggs,  8  Pick.  123; 

Meyer  v.  Wells,  5  Hill,  465.  Carpenter  v.  King,  9  Met.  511;  Ern- 

»  Emerine  v.  O'Brien,  36  Ohio  St.  erine  v.  O'Brien,  36  Ohio  St.  491. 

491;  Goodrich  v.  Tracy,  43  Vt.  314;  *  Comstock  v.  Gage,  91  111.  328. 


318  THE  PARTIES  TO   THE  INSTRUMENT. 

surety  is  not  discharged,  where  the  element  of  fraud  does 
not  intervene  in  such  representations,  and  the  creditor  does 
not  intend  to  mislead,  although  the  collateral  securities 
agreed  to  be  given  by  the  principal  debtor  are  never  deliv- 
ered, others  of  less  value  being  substituted.1  Where  the, 
creditor  is  without  knowledge,  it  is  no  discharge  of  a  surety 
that  he  was  induced  to  sign  the  note  by  the  fraudulent  or 
false  misrepresentations  of  his  principal." 

§  245.  DISCHARGE  OF  SURETY  BY  CHANGES  IN  INSTRU- 
MENT.— The  erasure  of  the  word  surety  or  security  in  a  prom- 
issory note,  without  the  consent  of  the  person  bound,  or  the 
names  of  other  sureties,  made  without  consent,  or  of  an 
erasure  of  a  seal  upon  a  specialty,  changing  the  legal  effect 
of  an  instrument,  are  sufficient  to  discharge  sureties.5 
Where  a  promissory  note  is  fully  executed  by  a  principal 
and  surety  and  delivered  to  the  payee,  and  thereafter, 
without  the  knowledge  of  the  surety,  the  name  of  an- 
other person  is  added  thereto  as  additional  surety,  the 
first  surety  stands  discharged,4  and  also  where  a  note 
is  delivered  without  the  name  of  a  co-surety  as  agreed, 
and  no  notice  thereof  until  the  principal  is  insolvent.5 
An  exception  to  the  rule  that  an  extension  of  time  for 
payment  to  the  principal  debtor  will  discharge  a  surety 
arises  where  both  parties  appear  upon  the  face  of  the  note 
as  joint  debtors.  The  equity  of  the  surety  to  relief  is  not 

1  Fitchburgli  Savings  Bank  v.  550 ;  Bonar  v.  McDonald,  3  II.  L. 

Rice,  124  Mass.  72.  Cas.  239 

1  Booth  «.  Storrs,  75  111.  438  ;  Da-  *  Evans  t>.  Bremridgc.  25  L.  J.  Ch. 

vis  Sewing  Machine  Co.  v.  Buckles,  104.  If  the  surety  is  informed 

89  Ib.  237;  Ladd  v.  Trustees,  80  Ib.  thereof,  and  suffers  the  principal  to 

233.  act  without  objection,  he  is  estopped' 

1  Oregon  v.  Allison,  9  Baxter,  459;  from  setting  up  the  condition  to 

Blakely  v.  Johnson,  13  Bush,  197.  avoid  liability  on  the  bond.  Wright 

4  Berry  man  v.  Mauker,  56  Iowa,  v.  Lang,  60  Ala.  389.  If  he  promise 

150;  Dickerson  v.  Miner,  43  Ib.  508;  to  pay.  after  knowledge,  lie  can  only 

Whicher  v.  Hall,  5  B.  &  C.  276;  be  sued  upon  his  promise.  Loving 

Navigation  Co.  v.  Roll,  6  C.  B.  N.  S.  v.  Dixon,  56  Tex.  75. 


THE  SURETY'S  DISCHARGE.  319 

preferred  in  the  absence  of  knowledge  of  its  existence,  as 
against  the  claims  of  the  creditor  or  indorsee  for  value  of 
the  note.  Clear  proof  of  the  knowledge  of  the  creditor  or 
indorsee  of  the  real  relations  of  the  parties  must  be  shown 
to  entitle  the  surety  to  relief.1  And  it  is  only  in  equity  and 
not  at  law,  that  relief  will  be  given.8  The  creditor,  how- 
ever, is  charged  with  the  equitable  claims  of  the  surety 
where  he  has  knowledge  of  the  true  relations  of  the  parties, 
acquired  at  any  time  before  he  does  the  act  which  alters 
the  surety's  position.* 

§  246.  SURETY,  WHEN  NOT  RELEASED  IN  CASES  OP 
FORGERY. — The  forgery  of  a  name  of  a  pretended  surety 
upon  a  note,  by  means  of  which  another  person  is  induced 
to  sign  as  surety,  believing  such  signature  to  be  genuine,  is 
not  a  discharge  of  such  surety.  No  defense  arises  there- 
upon as  against  an  action  upon  the  note  by  the  creditor,  or  an 
indorsee  for  value,  before  maturity,  without  notice.4  The 


1  Davis  v.  Graham,  29  Iowa,  514 ;  Thorn,  56  N.  Y.  502;  Bank  v.  Hoge, 

Torrencev.  Alexander,  84  N.  C.  4;  6  Ohio,   18;    Orville  v.   Newell,  17 

McMillan  v.  Parkell,  64  Mo.    286;  Conn.  97;  Burke  v.  Kruger,  8  Tex. 

Albright  «.  Griffin,    78    Ind.    182;  66;  Peake  v.  Estate,  25  Vt.31;  Riley 

Claremont  Bank  v.  Wood,   10  Vt.  ®.  Gregg,  16  Wis.  671;  In  re  Good- 

585;  Neil  v.  Heilman,  9  Biss.  358.  win,  5  Dillon,  144  ;    Pooley  v.  Har- 

*  Paulin  v.  Kaiglm,  27  N.  J.  Eq.  radine,  7  E.  &  B.  431;  Greenough  v. 

508.  McClelland,  2  El.  &  El.  424;  Bailey 

1  Guild  v.  Butler,  127  Mass.  386;  v.  Edwards,  4  B.  &  S.  761 ;  Ewin  v. 

Harris    V.    Brooks,    21    Pick.    195;  Lancaster,  7  B.  &  S.  571;   Davis  v. 

Home  v.  Bod  well,  5  Gray,  457;  Car-  Stainbank,  DcG.  M.  &  G.  696;  Oak- 

penter  v.  King.  9  Met.  511;  Kennedy  ley  ®.  Pasheler,  4  Cl.  &  F.  207;   Li- 

«.  Evans,  31  111.  269 ;  Branch  Bank  quidators  v.  Liquidators,  L.  R.  7  Ch. 

v.  James,  9  Ala.  949;  Kelly  v.  Gilles-  142;  s.  c.  7  H.   L.  348  ;   Wilson  ». 

pie,  12  Iowa,  55;  Smith  v.  Shelden,  Lloyd,  L.  R.  16  Eq.  60,  71;  Swire  v. 

35  Mich.  42;  Lime  Rock  Bank  v.  Redman,  L.  R.  1  Q.  B.  D.  536,  542. 

Mallett,  42  Me.  429;  Marine  Bank  v.  *  York  County  Ins.  Co.  v.  Brooks, 

Abbott,  28  Ib.  280;  Davis  v.  Barring.  51  Me.  506;  Selser  v.  Brock,  3  Ohio 

ton,  30  N.  H.  524;    Wheat  v.  Ken-  St.  302;  Stoncr  v.  Milliken,   85  111. 

dall,  6N.  H.  504;  Miller  v.  McCan,  218;    State  v.   Baker,    64  Mo.   167; 

7  Paige,  451;  Manchester  etc.  Co.  v.  Stern  B.  People,  102  111.  540. 
Sweating,  10  Wend.  163 ;  Millerd  v. 


320  THE  PARTIES   TO   THE   INSTRUMENT. 

recovery  of  such  creditor  or  other  indorsee  for  value,  with- 
out notice,  is  supported  upon  the  rules  of  estoppel  in  pais 
or  equitable  estoppel,  that  where  one  of  two  innocent  per- 
sons must  suffer  from  the  fraud  and  deceit  of  a  third  person, 
he  who  first  trusts  such  third  person  and  places  in  his 
hands  the  means  to  commit  the  wrong,  must  bear  the  loss.1 
Sureties  are  not  discharged  where  a  new  note,  with  the 
names  of  sureties  forged  thereon,  is  given  by  the  principal 
to  the  indorsee  of  the  original  security,  upon  which  such 
sureties  are  bound,  although  such  note  was  cancelled  and 
destroyed  ;  nor  will  the  surrender  of  a  fictitious  and  forged 
security  held  by  the  creditor  for  the  benefit  of  a  surety, 
to  whom  the  same  was  of  no  possible  use,  except  as  a  mat- 
ter to  be  held  in  terrorem  over  other  persons,  entitle  such 
surety  to  a  decree  in  equity  relieving  him  from  his  obliga- 
tion on  the  principal  note.*  A  surety  is  not  discharged 
where,  having  executed  a  bond  on  the  faith  that  his  prin- 
cipal would  also  execute  the  same,  which  was  not  done,  but 
an  instrument  was  in  fact  executed  by  the  principal  in  the 
transaction  by  reason  of  which  the  surety  became  a  special- 
ty creditor,  and  had  a  right  of  action.* 

§  247.  RELEASE  OP  SURETY  BY  EXTENSION  OF  TIME  TO 
PRINCIPAL. — A  creditor  or  indorsee  of  a  negotiable  promis- 
sory note  executed  in  form  by  a  principal  and  surety,  or 
where  the  note  is  executed  by  both  as  principals,  but  the 
creditor  or  holder  is  chargeable  with  the  knowledge  that  one 
of  the  parties  is  a  surety  for  the  other,  who  agrees  with  the 
principal  debtor,  upon  a  valuable  consideration  and  by  a 
contract  binding  upon  both  parties,  to  extend  the  time  for 
the  payment  of  such  note  for  a  definite  period,  without  the 
consent  of  the  surety,  discharges  the  latter  absolutely  from 
his  obligation.  The  creditor,  by  such  an  undertaking, 
practically  agrees  that  during  such  extension,  he  will  not 

1  Selser  v.  Brooks,  and  Stoner  v.         '  Cooper  ».  Evans,  L.  R.  4  Eq.  45; 
Milliken,  supra.  Mackintosh  «.  Wyatt,  3  Ilarc,  562. 

» Loomis  ».  Fay,  24  Vt.  240. 


THE  SURETY'S  DISCHARGE.  321 

receive  paj-ment  of  the  debt  from  any  one  standing  in  the 
position  of  surety ;  since,  upon  payment,  the  surety  would 
at  once  be  entitled  to  sue  his  principal.  The  surety,  being 
thus  deprived  of  his  remedies  against  his  principal  under 
the  origiiiiil  contract  of  suretyship,  is  discharged  of  his  obli- 
gation upon  recognized  equitable  principles.  Courts  of 
equity  will  give  him  relief  by  injunction  as  against  an 
action  at  law  brought  by  the  creditor  or  holder  to  enforce  his 
personal  obligation  upon  the  principal  debt.1  The  same 
rule  applies  as  to  bills  of  exchange.  The  acceptor,  being 
the  principal  debtor,  and  the  other  parties  sureties,  if  the 
holder  of  the  bill,  by  a  valid  contract  for  valuable  consider- 
ation, gives  time  for  a  definite  period  to  the  acceptor,  the 
other  parties  to  the  bill  are  discharged  from  any  liability 
contracted  by  becoming  parties  thereto.9 

In  order  that  an  extension  of  time  of  payment  by  the 
creditor  to  the  principal  debtor  should  have  this  effect  of 
releasing  the  surety,  it  is  essential  that  the  agreement  for 
delay  should  be  for  a  definite  time,  upon  sufficient  considera- 
tion, and  binding  upon  both  parties,  and  without  the  consent 

1  Bradshaw  «.  Combs,  102  111.  428;  512;  Halliday  v.  Hart,  30  K  Y.  474, 

First  Nat.  Bank  v.  Pierce,  99  Ib.  272;  488;    Blydeuburgh  v.  Bingham,  38 

Grossman  v.  Wohlleben,  90  Ib.  537;  Ib.  371;  Merchants' Bank®.  Wixen, 

Danforth    v.    Semple,    73   Ib.   170;  42  N.  Y.  438;   Hubbard  v.  Gurney, 

Woolford    v.    Dow,    34    111.    428;  64  Ib.  457,  468;  a  single  day  will  be 

Phares  v.  Barbour,  49  Ib.  370;   Da-  sufficient,   Ducker  «.  Rapp,  67  Ib. 

vis  v.  People,  1   Gilm.  409;    Globe  464;  Jester®.  Sterling,  25  Hun,  344; 

Ins.    Co.  v.   Carson,    31    Mo.    218;  Denick  v.  Hubbard,  34  K  Y.  Supr. 

Rucker  v.  Robinson,    38    Ib.    154;  Ct.  347;  Dunham  v.  Countryman,  66 

Headlee  v.  Jones,  43  Ib.  235;  Hosea  Barb.  268;    Brown  v.   Prophit,    53 

v.  Rowley,  57  Ib.  357;  Newcomb  v.  Miss.  649;  Farnsworth  v.   Coots,  46 

Blakeley,  1  Mo.  App.  289;  Jennison  Mich.  117;  Bebout  v.  Bodle,  38  Ohio 

v.  Stafford,  1  Cush.  168  ;   Greeley  «.  St.  500 ;  Liquidators  «.  same,  L.  R. 

Dow,  2  Met.  176;  Paulin  v.  Kaighn,  7  H   L.  348;  Howell  v.  Jones,   1   C. 

29  N.  J.  L.  505;    s.   c.    29  Ib.  480;  M.  &  R.  97;    Philpot   v.   Briant,  4 

Thompson  v.  Bowne,  39  Ib.  2 ;  Gray  Bing.  717.     Combe  v.  Wolf,   8   Ib. 

v.  Brown,  22  Ala.    273;    Bangs  v.  162;  Strong  v.  Foster,  17  C.  B.  219; 

Strong,  10  Paige,  11;   s.  c.  7  Hill.  Bailey  v.  Edwards,  4  B.  &  S.  761. 

250;  Fellows  v.  Prentice,  3  Demo,  *  Philpot  v.  Briaut,4  Bing.  717. 
21 


322  THE   PARTIES  TO  THE   INSTRUMENT. 

of  the  surety  or  indorser.'*  Such  extension  of  time  for  pay- 
ment must  involve  the  substitution  of  a  subsequent  for  a 
former  agreement.*  Where  these  considerations  exist, 
whether  the  extension  of  time  to  the  principal  is  beneficial 
to  the  surety  or  not,  the  latter  stands  absolutely  discharged.1 
A  surety  may,  however,  consent  to  an  extension  of  time  to 
his  principal;4  or  may  subsequently  ratify  the  agreement 
entered  into  by  the  creditor  and  the  principal  debtor  for 
such  extension.5  The  surety  may  also  waive  his  right  of 
release  by  entering  into  a  new  agreement,  which  will  be  en- 
forced, provided  the  surety  upon  making  the  same  was 
aware  of  his  release  from  the  prior  obligation.8 

§248.  WHEN  SURETY  NOT  RELEASED  BY  EXTENSION 
OF  TIME. — The  discharge  of  a  surety,  where  the  creditor  or 
holder  of  the  note  has  given  the  principal  debtor  an  exten- 
sion of  time  for  payment,  is  subject  to  certain  conditions  as 
stated,  and  does  not  follow  in  cases  where  the  requisites  of 
a  valid  extension  do  not  exist.  The  surety  is  not  discharged, 
if  the  extension  of  time  be  granted  without  a  valuable  con- 
sideration therefor,  so  that  the  creditor  remains  under  no 
legal  obligation  to  delay  suit  against  the  principal  creditor.7 
A  mere  promise  to  pay  interest  by  the  principal  debtor  for 

1  Cherry   v.  Miller,  7  Lea,   305;  403 ;    Adams   v.   Way,    32    Conn. 

Gardner  v.   Watson,    13    111.    347;  172. 

Flynn*?.  Mudd,  27  Ib.  323;Danforth  •  Wool  ford  v.  Dow,  31    111.  424; 

«.  Semple,  73  Ib.  170;  Globe  Ins.  Co.  First  Nat  Bank  v.  Whitman,  66  Ib. 

«.  Carsou,  31  Mo.  218;  Moss  v.  Hall,  331. 

5  Exch.  50  ;  Thompson  v.  Robinson,  •  Hinds  v.  Ingham,  31  111.  400. 

34  Ark.  44.  T  Corbett  v.  Woodward,  5  Sawy.  C. 

4  Bebout  v.  Boclle,  38  Ohio  St  500.  C.  403,  416;  Creath  v.  Sims,  5  How. 

8  Dunham     n.     Countryman,     66  192;  McKenny  t>.  Waller,  1   Leigh, 

Barb.  268;   Davis  v.  People,  1  Gilm.  434;  Reynolds?).  Ward,  5  Wend. 501; 

409;  Water  v.  Crame,  20  111.  148;  Gardner  v.  Watson,  13  111.  347 ;  Gal- 

Warner  v.  Campbell,    26  Ib.  282  ;  braith  v.  Fullerton,  53  Ib.  126 ;  Lieb- 

Galbraith  v.  Fullerton,  53  Ib.  126;  brandt  v.  Myron  Lodge,  61   Ib.  81 ; 

Phares  ».  Barbour,  49  Ib.  390 ;  Dan-  State  v.  Manning,  55  Mo.  142  ;   Den- 

forth  v.  Semple,  73  Ib.  170.  ick  ».  Hubbard,  27  Hun.  347  ;  Halli- 

4  Corbett  v.  Woodward,  5  Sawy.  day  v.  Hart,  30  N.  Y.  474,  488. 


THE  SURETY'S  DISCHARGE.  323 

the  forbearance,  when  he  already  is  under  a  like  obligation 
by  the  original  contract,  is  not  sufficient.1  If  the  considera- 
tion for  the  extension  be  itself  illegal,  as  being  usurious,  the 
surety  is  not  discharged.9  Nor  where,  the  contract  for  ex- 
tension having  been  made  with  a  stranger,  the  surety  may 
still  pay  the  debt  and  pursue  his  remedy  against  the  princi- 
pal.3 The  surety  is  not  discharged  where  the  extension  of 
time  is  indefinite,  or  during  the  pleasure  of  the  creditor.4 

Where  an  extension  of  time  was  secured  upon  the  false 
representations  of  the  principal  that  the  surety  had  con- 
sented thereto  and  a  payment  of  interest,  the  creditor,  upon 
discovery  of  the  fraud,  was  allowed  to  repudiate  the  agree- 
ment and  sue  upon  the  original  contract,  without  refunding 
or  tendering  the  amount  received  as  interest,  the  agreement 
for  extension  being  wholly  invalid.5  The  constructive 
presence  of  a  surety,  and  his  presumed  consent,  are  suffi- 
cient to  defeat  the  usual  operation  of  an  extension  of  time 
upon  the  obligation  of  a  surety,  where  in  an  action  against 
both  principal  and  surety  upon  a  note  the  principal  confesses 
judgment  upon  an  agreement  that  execution  shall  not  issue 
for  a  year,  although  without  the  knowledge  of  the  surety.6 

§  249.  LIKE  RULES  AS  TO  SURETIES  UPON  SPECIAL- 
TIES.— Sureties  bound  upon  specialties  are  released  from 
their  obligations  under  like  rules  as  to  extension  of  time. 
Where  a  creditor  gives  an  extension  of  time  on  a  judgment 
to  the  principal  debtor,  the  surety  is  discharged,  if  such 


1  Reynolds  v.  Ward,  5  Wend.  501.  a  payment  of  usury  is  made,   but 

*  Real  Estate  Trust  Co.  v.  Leech,  not  in  pursuance  of  a  binding  agree- 

69  N.  Y.  248 ;  Church  v.  Malley,  70  ment,  a  surety  is  not  discharged. 

Ib.  63  ;  Vilas  v.  Jones,  1  N.  Y.  274  ;  Hemery  v.  Marksberry,  57  Mo.  399. 

National  Bank  v.  Place,  15  Hun,  564;  «  Frazer  v.  Jordan,  8  El.  &  B1.312. 

Denick  v.  Hubbard,  27  Ib.347;  Wiley  4  Thompson  v.  Robinson,  34  Ark. 

V.  Keight,   39    Mo.   130;    Marks  v.  44. 

Bank,  8  Ib.  316;  Charlotte  Bank  v.  «  Bebout  v.  Bodle,  38  Ohio  St.  500. 

Lineberger,  83  N.  C.  454.    Contra;  *  Carraway  v.  Odeneal,    56  Miss. 

Wild  «.  Howe,  74  Mo.  551.     Where  223 ;  Ammons  v.  Whitehead,  36  Ib.  79. 


324  THE  PARTIES   TO  THE  INSTRUMENT. 

time  be  granted  without  his  knowledge  and  consent.1  An 
agreement  by  parol  to  extend  the  time  of  payment  upon 
a  specialty  debt,  represented  by  a  bond,  under  seal,  being 
sufficient  to  bind  the  creditor,  releases  a  surety,  if  made 
without  his  consent.*  Relief  of  the  surety,  where  it  is 
sought  to  establish  a  discharge  from  liability  upon  a 
specialty  debt  or  judgment,  by  reason  of  an  extension  of 
time  by  parol,  must  be  sought  in  equity,  as  it  is  not  availa- 
ble in  an  action  at  law  upon  such  bond  or  judgment.8  The 
sureties  on  a  bond  were  released,  where  the  principal 
debtor  gave  the  creditor  his  own  promissory  note  for  the 
same  amount,  payable  in  terms  at  the  same  time  as  the  time 
stipulated  in  the  bond,  as  the  maker  thereby  became  en- 
titled to  three  days  of  grace  for  payment  beyond  the 
time  set  by  the  original  security.4 

§  260.  RIGHTS  AGAINST  SURETY  RESERVED,  UPON  RE- 
LEASE OP  PRINCIPAL  OR  CO-SURETY. — An  agreement, 
upon  valuable  consideration,  by  a  creditor  to  release  and 
discharge  a  principal  debtor,  but  expressly  reserving  in 
such  instrument  of  release,  and  as  a  part  of  the  same 
transaction,  the  right  of  the  creditor  to  proceed  as  against 
a  surety  bound  upon  the  same  obligation,  does  not  affect,  in 
equity  or  at  law,  the  continuing  liability  of  the  latter. 
Such  a  covenant  operates  not  as  an  absolute,  but  only  as  a 
qualified  and  conditional  suspension  of  the  right  of  ac- 
tion. Necessarily  it  must  be  treated  as  if  it  were  made,  in 

1  Boling  v.  Young,  38  Ohio  St.  135;  v.  Young,  supra;  Baker  v.  Cincinnati, 
Blazer  v.  Bundy,  15  Ib.  57;  Sayre  v.  11  Ohio  St.  534;  Denier  t>.  Myers,  20 
King,  17  W.  Va.  562;  McNulty  ».  Ib  336 ;  Stcpban  t>.  Daniels,  27  Ib.527. 
Hurd,  18  Hun,  1.  If  the  surety  has  •  Carter  v.  Duncan,  84  N.  C.  676. 
by  compulsory  process  paid  the  *  Witncr  v.  Ellison,  72  111.302; 
judgment  to  save  his  goods  and  Tate  v.  Wymand,  7  Blackf.  240; 
chattels  from  forced  sale,  he  is  en-  Lock  v.  U.  S.  3  Mason,  446;  Davy  t>. 
titled  to  recover  from  the  judgment  Prendcrgrass,  5  B.  &  Aid.  187;  Par- 
creditor  the  amount  so  paid,  and  the  ker  v.  Watson,  8  Ex.  404. 
latter  is  remitted  to  his  remedies  *  Appleton  v.  Parker,  15  Gray,  173. 
against  the  principal  debtor.  Boling 


THE  SURETY'S  DISCHARGE. 


325 


express  terms,  subject  to  the  consent  of  the  surety.  The 
rights  of  the  surety,  under  his  contract,  can  not  be  limited 
or  destroyed  to  his  loss,  by  any  secret  agreement  between 
the  principal  and  creditor.  If  the  latter  has  surrendered 
all  claims  upon  the  principal  debtor,  so  that  they  are  ab- 
solutely unenforceable,  the  surety  is  discharged  ;  if  the  agree- 
ment, however,  is  in  effect  only  a  covenant  not  to  sue  the 
principal,  the  surety's  rights,  as  against  both  parties,  are 
not  affected,  and  no  discharge  results.  The  surety  may  at 
once  upon  payment  proceed  against  his  principal  for  the 
money  paid  to  his  use ;  and,  in  proper  cases,  will  be  given 
equitable  relief  as  against  the  creditor  and  principal  even 
before  payment.1  It  was  sought  in  an  early  case  to  extend 
the  rule  to  a  release  by  a  creditor  of  one  of  two  or  more  co- 
sureties, reserving  his  rights  against  the  other  sureties,*  but 


1  Oxley  V.  Storer,  54  111.  159;  Par- 
malee  v.  Lawrence,  44  Ib.  405;  Muel- 
ler v.  Dobscheutz,  86  111.  176  ;  Ains- 
worth  v.  Brown,  31  Ind.  270;  Mc- 
Lellan  v.  Cumberland  Bank,  24  Me. 
566;  McAllister  v.  Sprague,  34  Me. 
296;  Rucker  ».  Robinson,  38  Mo. 
154 ;  Farnsworth  v.  Coots,  46  Mich. 
117;  Greenleaf  v.  Lorin?,  35  Mich.  63; 
Clagett  v.  Salmon,  5  Gill  &  J.  314; 
Blackburn  ^.Ball.  21  Md.  208;  Shaw 
v.  Pratt,  22  Pick.  305;  Sohler  v.  Lor- 
ing,  6  Cush.  537;  Smith  v.  Barthol- 
amew,  1  Met.  276;  Stirewalt  v.  Mar- 
tin, 84  N.  C.  4 ;  Charlotte  «.  Line- 
berger,  83  Ib.  454;  Durrell  v.  Wen- 
dell, 8  N.  H.  369;  Snow  v.  Chandler, 
10  Ib.  92;  Crane  «.  Ailing  15  N.  J. 
L.  423;  Catskill  Bank  v.  Messenger, 
9  Cow.  38;  Rowley  v.  Stoddard,  7 
Johns,  207;  Bronson  ».  Fitzhugh,  1 
Hill,  183  ;  Frink  v.  Green,  5  Barb. 
455;  Couch  v.  Mills,  21  Wend.  424; 
Hubbell  ft  Carpenter,  5  N.  Y.  1-71 ; 


Morgan  ft  Smith,  70  N.  Y.  545;  Cal- 
vo  v.  Davies,  72  Ib.  211;  National 
Bank  v.  Bigler,  83  Ib.  51, 66;  Palmer 
v.  Purdy,  Ib.  143 ;  Burke  v.  Noble, 
48  Pa.  St.  168 ;  Vieley  v.  Ho;ig,  24 
Vt.  46-;  Morse  v.  Huntington,  40  Ib. 
488,  496;  Ex  parte  Glendenning, 
Buck,  519;  Kearsley  v.  Cole,  16  M. 
&  W.  128  :  Price  v.  Barker,  4  El.  & 
Bl.  760  ;  North  ».  Wakefield.  13  Q. 
B.  541;  Braler  «.  Mayor,  19  C.  B.N. 
S.  76;  Solly  ft  Forbes,  2  B.  &  B.  46; 
Green  v.  Wyman,  L.  R.  4  Ch.  204  ; 
Liquidators  v.  Liquidators,  L.  R.  7 
Ch.  142;  s.  c.  7  H.  L.  348;  Muir  ft 
Crawford,  L.  R.  2  H.  L.  Sc.  456  (a 
bill  of  exchange). 

»Ex  parte  Gifford,  6  Ves.  505 
(Lord  Eldon);  Stirling  v.  Forrester, 
3  Bligh,  591,  596;  United  States  v. 
Murphy,  13  Fed.  Rep.  589,  recog- 
nizes the  rule,  although  under  the 
circumstances  of  the  case,  it  was  not 
applied.  Story's  Eq.  Jur.  §  498  a. 


326  THE  PARTIES  TO  THE   INSTRUMENT. 

the  case  has  been  expressly  overruled  in  later  decisions.1 
Where  such  a  release  has  been  made,  it  is  no  defense  to  an 
equitable  suit  for  contribution  by  other  sureties  who  have 
paid  the  debt.* 

§  251.  DISCHARGE  OP  ESTATE  OP  SURETY  UPON 
DEATH,  AS  AGAINST  CREDITOR. — Upon  the  death  of  a 
surety,  bound  jointly,  his  estate  is  absolutely  discharged 
both  at  common  law  and  equity  as  to  the  creditor,  the  sur- 
vivor or  survivors  alone  being  responsible.  Receiving  no  part 
of  the  consideration  of  the  note  either  from  the  creditor  or 
principal  debtor,  equity  finds  no  moral  ground  upon  which 
it  can  rest  an  obligation  to  pay,  and  discharges  the  estate 
of  the  surety  after  his  death.8  And  this,  whether  the 
creditor  knew  the  deceased  was  a  surety  on  the  note 
or  not.4  Where  two  persons  gave  a  joint  and  several 
bond,  and  the  obligee  elected  to  take  a  joint  judgment 
thereon,  and  the  surety  deceased,  the  obligee  was  not  allowed 
to  enforce  such  judgment  against  the  estate  of  the  surety,* 
although  the  surety  alone  had  appealed  from  such  judgment, 
giving  an  indemnity  bond,  the  appeal  being  pending  at  the 
time  of  his  death.*  Where  a  surety,  however,  holds  se- 
curity from  the  principal  for  the  payment  of  the  debt,  it 
remains  as  available  to  the  creditor  after  the  surety's 
decease  as  before.7 


1  Nicholson  «.  Revill.  4  Ad.  &  E.  v.  Craighead,  67  Ib.  432;  Risley  t>. 

683;  Evans  v.  Bremridge,  25  L.  J.  Brown.  67  Ib.  160;  Dixon  v.  Vand- 

Cu.   104  ;    Pledge  v.  Buss,   Johns,  enbergh  35  K  J.  Eq.  47.    The  con- 

Eng.  Ch.  6C3.  tra  rule  is  held  in  Hudelson  v.  Arra- 

1  Clapp  v.  Rice,  15  Gray,  559;  Hill  strong,  70  Iiid.  99;  Smith  v.  Martin, 

c.  Morse,  61  Me.  541 ;  Crosby  v.  Wy-  4  Dess.  149. 
att,  23  Ib.  163.  4  Dixon  v.  Vandeiibergh,  35  N.  J. 

'  United  States  v.  Price,  9  How.  Eq.  47. 

83;  Pickersgill  v.  Lahers,   15  Wall.          •  United  States  v.  Price,  supra. 
140;  Fielden  v.   Lahers,   6  Blatch.          •  Risley  ».  Brown,  67  N.  Y.  160. 
524  ;  Gette  v.  Binsee,  49  N.  Y.  385 ;          '  Crosby  v.  Crafts,  69  N.  Y.  607. 
Wood  t>.  Fiske,  63  Ib.  245;  Hanck 


THE  SURETY'S  DISCHARGE.  327 

§  252.  NO  DISCHARGE  OF  ESTATE,  AS  AGAINST  CO- 
SURETIES.— The  death  of  one  of  two  or  more  sureties  will 
not  relieve  the  estate  of  a  deceased  surety  from  the  equit- 
able obligation  of  contribution  to  other  sureties  upon  pay- 
ment of  the  debt.  This  obligation  of  the  contract  of  co- 
suretyship  is  rested  upon  an  implied  agreement  of  the  parties 
to  contribute  towards  discharging  the  liability  incurred  on 
behalf  of  a  common  principal.  Where  there  has  been  a 
default  on  the  part  of  the  principal,  before  the  death  of  the 
surety,  the  obligation  to  contribute  descends  upon  the 
representatives  of  the  deceased  surety,  in  like  manner  as 
any  other  contract  by  him  to  pay  money  upon  a  future 
event  or  contingency.1  The  recovery  of  a  surety  against 
the  estate  of  his  deceased  co-surety  in  a  suit  for  contribution 
has  been  restricted  to  an  aliquot  portion  of  the  money,  not- 
withstanding some  of  the  other  sureties  may  be  insolvent.* 

•Johnson  v.   Harvey,   84  N.    Y.  wards,  2  B.  &.  P.  268;  Deering  v. 

363;  Bradley  v.  Burwell,  3  Den.  61;  Winchelsea,  Ib.  270.  Contra :  Waters 

Tour  v.    Goodrich,    2  Johns.    213;  v.  Riley,  1  H.  &  G.  305. 

Powell  v.  Smith,  8  Ib.  249;  Batchel-  s  Stothoff  v.  Dunham,  10  N.  J.  L. 

der  9.  Fisk,  17  Mass.  464  ;  Wood  «.  181. 
Leland,  1  Met.  387 ;  Cowell  «.  Ed- 


328  THE  PARTIES  TO  THE   INSTRUMENT. 


CHAPTER    XXV. 

INDORSEES  AND  GUARANTORS. 

• 

§253.  The  contracts  of  the  indorser  and  guarantor. 

254.  Subrogation  of  holders  to  collaterals  of  accommodation  indorsers. 

255.  Subrogation  of  accommodation  indorser  to  securities. 

256.  Contribution  and  subrogation  between  successive  accommodation 

indorsers. 

257.  The  indorser,  as  charged  by  pledgee  of  collateral  notes. 

258.  The  discharge  of  the  indorser. 

259.  Tbe  law  of  continuing  guaranties. 

260.  Guaranties  of  contracts,  void  or  ultra  vires. 

261.  The  enforcement  of  the  liability  of  the  guarantor. 

262.  The  guarantor's  liability,  where  creditor  holds  collateral  securities. 

§  253.  THE  CONTRACT  OP  THE  INDORSER  AND  GUAR- 
ANTOR.— The  contract  of  an  indorser  of  a  negotiable  prom- 
issory note  is,  that  the  instrument  and  antecedent  signatures 
are  genuine  ;  that  he  himself  has  a  good  title  and  is  compe- 
tent to  bind  himself  as  indorser ;  that  the  maker  is  competent 
to  bind  himself  and  will  pay  the  note  at  maturity,  upon  due 
presentment ;  otherwise,  upon  default,  he,  the  indorser, 
upon  due  and  reasonable  notice  of  dishonor,  will  pay  the 
same  to  the  indorsee  or  other  holder.1  The  indorser  of  a  bill 
of  exchange  belongs  to  that  general  class  of  sureties  in 
which,  strictly  speaking,  there  is  no  suretyship,  but  in 
which  there  is  a  primary  and  secondary  liability  of  two 
persons  for  one  and  the  same  debt ;  the  debt  being,  as  be- 
tween the  two  persons,  that  of  one  of  those  persons  only,  and 
not  equally  of  both,  so  that  the  other,  if  he  should  be  com- 
pelled to  pay  it,  would  be  entitled  to  reimbursement  by  the 

1  Ross  t>.  Jones,  22  Wall.  576,  589  (Clifford,  Jus). 


INDORSERS  AND   GUARANTORS.  329 

person  by  whom  (as  between  the  two)  it  ought  to  have  been 
paid.  As  between  the  indorser  and  the  acceptor,  the  former 
is,  upon  payment,  entitled  to  the  securities  held  by  the 
creditor,  and  also  to  sue  the  acceptor.1 

A  guaranty  is  a  separate,  independent  contract,  by 
which  the  guarantor  undertakes  in  writing,  for  a  valuable 
consideration,  to  be  answerable  for  the  payment  of  some 
particular  debt,  or  future  debts,  or  the  performance  of  some 
duty,  in  case  of  the  failure  of  another  person  primarily 
liable  to  pay  or  perform.*  Such  guaranty  is  assignable  with 
the  notes  or  other  obligations  secured  thereby.8  The  liabil- 
ity of  the  guarantor  is  not  extended  by  implication,  the  rule 
of  strict  construction  being  applied  in  his  favor.4  A  contract 
of  guaranty  is  regarded  as  an  irrevocable  and  absolute  en- 
gagement to  pay  the  debt  upon  maturity.5 

§  254.  SUBROGATION  OF  HOLDERS  TO  COLLATERALS  OP 
ACCOMMODATION  INDORSERS. — The  principle  of  subrogation 
is  applied  in  favor  of  the  holders  of  negotiable  paper  in  cases 

1  Duncan  0  North  &  S.  W.  Bank,  Cooper  v.  Deitrich,  22  Barb.  516; 

L.  R.  6  App.  1.  Partridge  «.Da  vis,  20  Vt.499.  Contra: 

9  Gallagher  v.  Nicholls,  60  N.  Y.  Hayden  v  Weldon,  43  N.  J.  L.  128; 

438,444;  Winchell  v.  Doty,  15  Hun,  Huck  v.  Hagcr,  51  Pa  St.  459;  Mc- 

1  ;  Brown  v.  Cartes,  2  N.  Y.  230  ;  Dowl  v.  Yeomans,  8  Watts,  361; 

Forbes  v.  Eowe,  48  Conn.  413;  Wei-  Smith  v.  Dickinson,  6  Humph.  261; 

ton  v.  Scott,  4  Conn.  533;  Rich®.  Ten  Eyck  •».  Brown,  4  Chaiull  151; 

Hathaway,  18  111.  548;  McMillan  v.  True  v.  Fuller,  21  Pick.  140.  A 

Bank,  32  Ind.  11;  Singer  Manfg  Co.  guaranty  is  not  negotiable,  nor  does 

v.  Littler,  56  Iowa.  601;  Dole  fl.Young,  it  become  so  by  being  indorsed  on 

24  Pick.  250;  Reigart  v.  While,  52  negotiable  paper,  the  payment  of 

Pa.  St.  440;  Wood  ».  Sherman,  71  which  it  is  designed  to  secure.  Hay- 

Ib  406.  den  v.  Weldon,  supra. 

8  Ellsworth  v.  Harmon,  101  111.  4  bhinefl.  Central  Savings  Bank,  70 

274;  Webster  e.  Cobb,  17  Ib.  459;  Mo.  524,  533;Sclmltze  v.  Crane,  64  N. 

First  National  Bank  v.  Carpenter,  Y.  659;  Burns  v.  Burrows  61  Ib  89. 

41  Iowa,  518;  Waldringfl.  Harring,  28  5  Hernandez  v.  Stillwell,  7  Daly, 

Mich.  493;  Claflin  v.  Ostrom,  54  N.  360;  Tator  v.  Thayer,  47  How.  Pr. 

Y.  581;  Craig  v.  Parkes,  40  Ib.  181;  180;  Russell  v  Clarke,  7  Cranch,  90. 
Ketchall  v.  Barnes,  24  Wend.  456; 


330  THE   PARTIES  TO  THE   INSTRUMENT. 

where  accommodation  indorsers  have  received  collateral 
securities  from  the  principal  debtor.  Such  holder  is,  upon 
failure  of  the  maker  to  pay,  at  once  subrogated  to  the  secur- 
ities held  by  the  indorser.  Such  securities  are  regarded  as 
in  the  nature  of  a  quasi  trust  fund.1  Where  such  security 
is  expressly  given,  as  well  for  the  benefit  of  the  holder  as 
for  the  indorser,  upon  an  assignment  thereof  to  a  third 
person,  with  notice,  the  equitable  lien  of  the  holder  of  the 
paper  will  be  preferred.8  Such  securities  may  be  transferred 
by  the  indorser  to  the  holder  upon  default  of  the  principal, 
and  the  proceeds  applied  to  the  payment  of  the  note,3  and  is 
sustained  where,  upon  dishonor  of  the  old  paper,  new  notes 
are  given,  it  being  the  intention  of  the  parties  to  keep  alive 
the  security.4  Where  the  indorser  still  retains  possession  of 
the  collateral  securities,  a  court  of  equity  will  require  them 
to  be  applied  in  payment  of  notes  when  indorsed  to  an  inno- 
cent holder  for  value,  in  the  usual  course  of  business.*  And 
the  misappropriation  of  the  proceeds  thereof  by  a  trustee  in 
whose  possession  the  securities  had  been  placed,  will  not 
limit  the  liability  of  the  maker  or  accommodation  indorser 
to  such  holder  for  value.8  Where  both  the  maker  and  in- 
dorsers are  insolvent,  the  holders  for  value  of  negotiable 
paper  are  entitled,  as  against  creditors,  to  the  enforcement 
of  securities  given  to  such  indorsers  as  indemnity,  although 
their  liability  has  not  become  absolute,  nor  been  discharged.1 
Upon  insolvency  of  the  principal  debtor,  the  holders  of  notes 

1  Burnside  v.  Fetzner,  63  Mo.  107;  *  Wells  v.  Smith,  2  Utah,  39. 

Haven  ®.  Pippin,  18  Ib.  136;  Nation-  *  National  Bank  v.  Ncwbiirgh,  83 

al  Exch.  Bank  v.  Silliman,  65  N.  Y.  N.  Y.  51,  Pond  v.  Clarke,  14  Conn. 

475;  Bennett  v.  Cook,  45  Ib.  268;  334;  Nightingale  0.  Chuff ee,  11  R.  I. 

Curtis  v.  Tyler,  9  Paige,  432;  Vail  t>.  609. 

Foster,  4  N.  Y.  312;  Homer  v.  Sav-  *  New  London  Bank  v.  Lee,   11 

ings  Bank,  7  Conn.  478;  Ohio  Life  Conn.  112;  Lewis  v.  DeForest,  20  Ib. 

Ins.  Co.  v.  Ledyard.  8  Ala.  866 ;  But-  440. 

ler  TJ.  Berkie,  13  Ohio  St.  514;  Rob-  •  Fischer  v.  Meyer,  24  Mo.  90. 

erts  «.  Colvin,  3  Gratt.  358.  '  National  Bank  v.  Small,  7  Fed. 

1  Hudson  etc.  Transfer  Co.  v.  Na-  Rep.  83;  Rogers  v.  Abbott,  128  Mass, 

tional  Bauk,  46  Conn.  573.  102. 


INDORSEES  AND   GUARANTORS. 


331 


are  entitled  to  subrogation  to  securities  held  by  an  accom- 
modation indorser  under  an  agreement  for  his  general  indem- 
nity, not  to  exceed  a  certain  sum.1  The  holder  may  prove 
for  the  full  amount  against  the  estate  of  the  insolvent  prin- 
cipal, notwithstanding  securities  are  held  by  the  accommo- 
dation indorser.* 

But  where  the  holder  of  a  bill,  being  informed  that  the 
acceptor  is  an  accommodating  party,  holding  collateral  secur- 
ities, and  makes  an  express  renunciation  of  any  claim  there- 
on, agreeing  to  look  to  the  drawer  for  payment,  the  accom- 
modation acceptor  is  discharged,  and  other  creditors  acquir- 
ing rights  to  such  securities  are  protected.3  The  holders  of 
notes  are  not  permitted  to  resort  to  property  where  one  of 
two  mortgages  received  by  an  indorser  as  security  from  his 
principal,  was  released  as  being  unnecessary  for  his  indem- 
nification. The  release  was  made  after  the  insolvency  of 
the  maker  and  indorser  for  the  purpose  of  securing  a  further 
loan,  which  was  advanced  by  an  innocent  person.4  Nor 
where  the  right  has  been  defeated  by  the  acts  of  the  holder 
himself,  seeking  such  subrogation;5  and,  pending  the  crea- 
tion of  other  equities,  the  indorser  holding  securities  for  his 
general  indemnification,  may  release  such  security,  as  he 
pleases.' 


1  Post  v.   Tradesman's  Bank,   28 
Conn.  421;  TiiraH  v.  Spencer,  16  Ib. 
139;  Lewis  v.  De  Forest,  20  Ib.  427; 
Homer  v.  Savings  Bank,  7  Ib.  478. 

2  Meed  v.  Nelson,    8    Gray,   55; 
Cabot  Bank  0.  Bodman,  11  Ib  134. 

8  Wluxrtley  v  Trk>kt>r,  1  Campb. 
351  :  Parker  v.  Leigh,  2  Stark.  229. 

4  Thrall  »  Spencer,  16  Conn.  139. 
The  Court  say:  "T.  had  no  legal 
title.  The  first  mortgage  was  not 
made  to  the  holders  of  these  notes, 
but  to  the  accommodation  indorser 
for  his  security.  Even  if  A.  were 
still  the  owner  of  the  property,  the 
plaintiff  could  only  reach  it  through 


the  intervention  of  a  court  of  equity. 
But  he  has  taken  the  notes  without 
making  any  claim  for  the  property, 
while  A.  retained  the  title.  He  has 
lain  still  until  the  latter  has  parted 
with  the  title  and  the  possession, 
and  the  property  has  gone  into  the 
hands  of  a  bona  fide  holder  for  a 
valuable  consideration.  He  there- 
fore  conies  too  late  for  relief." 

8  New  Bedford  Inst.  v.  Fairhaven 
Bank.  9  Allen,  125. 

6  Jones  v.  Quininipiack  Bank,  29 
Conn.  25;  Post  v.  Tradesman's  Bank, 
28  Ib.  421;  Thrall  v.  Spencer,  16  Ib. 
139. 


332  THE  PARTIES  TO  THE  INSTRUMENT.  . 

§  255.  SUBROGATION  OF  ACCOMMODATION  INDORSERS 
TO  SECURITIES. — The  subrogation  of  the  accommodation  in- 
dorser  to  the  securities  held  by  the  creditor  or  holder  for 
value  is  subject  to  the  condition  that  he  shall  have 
himself  first  paid  or  discharged  the  note.  Nor  can  the  in- 
dorser  insist,  after  his  liability  for  the  debt  is  fixed,  that  the 
creditor  or  holder  should  first  exhaust  the  collaterals  held 
by  either  of  them  from  the  principal  debtor  before  en- 
forcing his  personal  liability  upon  the  principal  note.1 
Prior  payment  is  also  necessary  to  entitle  the  accommo- 
dation acceptor  of  a  bill  of  exchange  to  subrogation  to  col- 
lateral securities  of  the  creditor  or  holder  of  the  negotiable 
paper.*  Where  a  judgment  is  rendered  on  the  debt,  an 
iudorser  upon  payment  is  subrogated  to  the  rights  of  the 
creditor  against  the  maker  thereunder.*  The  right  of  subro- 
gation is  restricted  to  securities  held  for  the  particular  debt, 
and  does  not  extend  to  all  the  securities  which  may  be  held 
by  the  creditor  upon  a  general  account.4  The  right  to  such 
securities,  being  a  mere  equity,  is  not  preferred  as  against 
equities  of  creditors  equally  deserving,  where  so  to  do 
would  be  to  sanction  a  fraud  upon  such  creditors.5  The 
principle  of  subrogation  has  no  application  in  a  case  where 
a  new  note,  with  a  new  accommodation  iudorser,  is  taken 
by  a  bank  in  payment  of  another  note,  signed  by  other  in- 
dorsers.  The  indorser  of  the  new  note  being  a  mere  vol- 
unteer, is  not  entitled  to  subrogation  to  a  judgment  held  as 
indemnity  by  the  indorser  of  the  former  note.6 

1  First  National  Bank  v  Wood,  71  9  Bank  of  Toronto  v.  Hunter,  4 

N.Y.  405, 411 ;  Beebe  v.  Banks.7  W.  &  Bosw.  646. 

8.  375;  Cottrell's  App.23  Pa.  St.294;  »  Rosst>.  Jones,  22  Wall.  586;  Lenox 

in  re  Babcock,  3  Story,  893;  Rosso,  v.  Prout,    3  Wheat.  525;    Hunt  v. 

Jones,  22  Wall.  576, 592.    But  where  Brigham,  2  Pick.  581 ;  Frye  «.  Bar- 

a  bank  had  a  lien  in  the  nature  of  ker.  4  Ib.  382;   Trimble  e.  Thome, 

security  on  the  principal's  stock,  as  16  Johns.  153;  Warner  v.  Beardsley, 

in  Union  Bank  v.  Laird,   2  Wheat.  8  Wend  199;  s.  c.  6  Ib  610 

890,  resort  thereto  would  be  more  4  City  Bank  v.  Luckie,  L.  R.  5  Ch. 

equitable  than  to  sue  an  indorser,  774  n.\  Wright  t>.  MorJey,  11  Ves.  12. 

who-  was  only  liable  upon  the  de-  '  Greer  v.  Bush,  57  Miss.  575. 

fault  of  the  acceptor.  •  Webster's  App.  86  Pa.  St.  409. 


INDORSEES  AND  GUARANTORS.  383 

§  256.  CONTRIBUTION  AND  SUBROGATION  BETWEEN  SUC- 
CESSIVE ACCOMMODATION  INDORSERS. — The  liability  of  par- 
ties to  negotiable  instruments  is  determined  by  the  contract 
established  by  the  position  of  their  names  upon  the  paper,  and 
if  the  right  of  contribution  between  two  or  more  persons 
whose  names  appear  on  negotiable  paper  can  not  be  sup- 
ported under  such  contract,  no  enforcement  thereof  can  be 
had.1  Where  one  of  two  accommodation  parties  executes 
a  note  as  a  joint  maker  with  the  principal  debtor  and  the 
other  as  payee  and  indorser,  the  former  is  not,  after  pay- 
ing the  note,  in  the  absence  of  a  special  agreement,  entitled 
to  contribution  as  against  the  latter.*  And  one  of  two  ac- 
commodation indorsers  on  promissory  note  having  paid  the 
note,  was  not  allowed  to  sue  for  contribution.8  An  accom- 
modation indorser,  holding  collaterals  from  the  principal, 
who  sold  the  same  for  the  exact  amount  of  the  note,  which 
he  paid,  is  not  entitled  to  an  action  against  prior  accommo- 
dation indorsers,  as  the  note  was  paid  with  the  proceeds  of 
the  collaterals.  If  the  money  had  still  remained  in  the 
hands  of  the  indorser,  it  would  have  been  devoted  to  the 
payment  of  the  note,  to  avoid  further  litigation.4  And 
where  the  indorser  of  a  note  was  a  non-resident,  and  not  a 
party  to  the  action,  nor  to  a  cross-claim  by  the  maker 
insisting  upon  equitable  defenses  as  against  the  holder,  the 
maker  was  not  allowed  subrogation  to  securities  held  by  the 
holder  from  such  indorser,  whose  alleged  fraud  had  wronged 
the  maker.6  The  principle  of  subrogation  is  applied  for  the 
benefit  of  successive  indorsers.  The  last  indorser  having 
paid  the  judgment  for  the  debt,  he  may  take  an  assignment 

'West    Boston  Savings  Bank  v.  *  Hillegas  c.Stephcnson,  75  Mo  118. 

Thompson,  124Mass.  506,  514;  Long-  3  Lane  v.  Stacey,  8  Allen,  411.   Uu- 

ley  v.  Griggs,  10  Pick.  121;  Smith®.  less  by  special  agreement,  Drake  v. 

Smith,  1   Dev.  Eq.  173;  Braham  v.  Christy,  10  Mo.  App.  566. 

Ragland,  3  Stew.  (Ala)  247;  Post  v.  *  Rowland  v.  Smith,  49  Conn.  (15 

Tradesman's  Bank,   28  Conn.  421 ;  Rep.  710.) 

Farmers'    Bank    v.  Van   Metter,  4  '  American  Nat.  Bank  v.  Harrison 

Rand.  553;  McCarty  v.   Roots,   21  Wire  Co.,  11  Mo.  App.  446. 
How.  U.  S.  432. 


THE  PARTIES   TO  THE  INSTRUMENT. 

thereof   in   order   to   enforce  payment    by   preceding    in- 
dorsers.1 

§257.  THE  INDORSEE,  AS  CHARGED  BY  PLEDGEE  OP 
COLLATERAL  NOTES. — As  between  the  parties  to  a  contract 
of  pledge,  the  holder  of  negotiable  instruments  as  collateral 
security  is  not  held  to  strict  rules  as  to  demand  and  notice 
of  non-payment.  His  failure  in  this  respect  will  not  dis- 
charge the  pledger  from  his  principal  debt,  although  the 
latter  may  be  credited  thereon  with  actual  loss.8  Upon  an 
action  against  a  holder  of  such  securities  for  neglecting  to 
protest  a  note,  and  thus  discharging  an  indorser,  the  recovery 
is  limited  to  the  sum  which  will  be  a  full  satisfaction  for  the 
damages,  subject  to  equitable  deduction  where  the  creditor 
holds  other  securities  for  the  debt.3  An  indorser  is  dis- 
charged where  a  notary  public  upon  demanding  payment  of 
the  maker  fails  to  produce  the  collateral  securities  held  by 
the  pledgee  to  secure  its  payment.4  It  is  no  defense  to  an 
action  against  an  indorser  upon  a  note  discounted  by  a 
bank,  that  at  the  time  of  the  discount,  it  was  understood 
that  the  bank  would  rely  upon  certain  collateral  securities 
rather  than  the  indorser.  Such  an  agreement,  if  it  had  a 
valuable  consideration,  would  not  affect  the  liability  of 
parties  to  the  principal  note.5  Where,  however,  an  in- 
dorser holding  a  promissory  note  as  security,  had  been 
discharged  on  the  principal  debt,  but  waived  the  want  of 
notice  and  paid  the  same,  he  was  not  permitted  to  enforce 
the  collateral  note  for  his  own  benefit,  upon  has  voluntary 
payment  of  the  principal  note.' 

1  Lloyd  «.  Barr,  11  Pa.  St.  41.  tional  Bank,  77  N.  T.  320,  329;  Bo- 

*  Douglass  0.  Reynolds,  7  Pet.  125;  rup  v.  Meininger,  5  Minn.  523. 

B.  c.  12  fb.  497;  Wildes  t>.  Savage,  1  *  Ocean  Nat.  Bank  t>.  Faut,  50  N. 

Story,  22;  Russell  v.  Hester,  10  Ala.  Y.  274;  see  Spaldang  v.  Bank.  9  Pa. 

535 ;  Whitten  «.  Wright,  34  Mich.  92.  St.  28 ;  Stuart  v.  Bigler,  98  Ib.  80. 

'  Mott  «.  Havana  Bank,  22  Hun,  *  West  Boston   Savings  Bank  c. 

854;  Allen  «.  Suyclam,  20  Wend.  321  •  Thompson,  124  Mass.  506,  514. 

First  National  Bank  v.  Fourth  Na-  •  Bachellor  v.  Priest,  12  Pick.  279. 


INDORSERS   AND   GUARANTORS.  335 

§258.  THE  DISCHARGE  OF  THE  INDORSER.  —  The 
liability  of  an  indorser  of  negotiable  paper,  bills  and  notes, 
is  limited  and  dependent  upon  the  condition  that  the  holder 
of  the  paper  shall  have  made  demand  of  payment  at  maturity 
and  upon  default  has  given  notice  of  non-payment  to  the 
indorsers.  Should  the  holder  omit  to  perform  these  essen- 
tial duties  the  indorser  stands  discharged.1  Where  securi- 
ties are  held  by  an  indorser  specially  for  his  own  benefit, 
whether  received  at  the  time  of  indorsement  or  later,  and  a 
failure  has  been  made  as  to  demand  and  protest,  so  that  he 
is  discharged  from  his  liabilities,  the  holder  of  the  note  has 
no  right  to  complain  if  he  return  such  securities  to  the 
maker.*  Demand  and  notice  of  dishonor  are  not  required 
to  charge  an  indorser  where  he  has  received  from  the  prin- 
cipal an  assignment  of  the  whole  of  his  property,  or  of  so 
much  thereof  as  is  clearly  equal  in  value  to  the  notes  upon 
which  the  indorser  is  bound,  and  is  holding  the  same  at  the 
maturity  of  the  note.8  Although  where  such  indemnity  is 
limited  to  "  legal  obligations/'  the  indorser  of  notes  is  dis- 
charged if  proper  demand  and  protest  be  not  made.4  The 
general  rules  under  which  an  indorser  is  discharged  in  cases 


1  Lenox  v.  Pratt,   3  Wheat.  520;  vail  t>.  Farmers'  Bank,  9  G.  &  J.  31; 

Bailey  ®.  Buchanan,  21   Kan.  474;  Hill  v.  Martin.  12  Lea,  177 ;  Codding- 

Clark  v.  Devlin,  2  P.  &  B.  366.  ton  ».  Davis,  3  Den.  16  ;  s.  c.  1  N.Y. 

9  Ray  v.  Smith,  17  Wall.  411;  Hoi-  186  ;  Benedict  v.  Coffe,  5  Duer,  233, 

land  v.  Turner,  10  Conn.  308;  Has-  266;  Mechanics'  Bank  v.  Griswold, 

kell    v.    Boardman,    8    Allen,    38;  7  Wend.  165;  Seacord  *>.  Miller,  13 

Creamer  v.  Perry,  17  Pick.  332  ;  Mar-  N.  Y.  55 ;  Perry  v.  Green,  19  N.  J. 

shall  v.  Mitchell,  35  Me.  221 ;  Moses  L.  61;  Kramer  v.  Samlford,  4  W.  & 

0.  Ela,  48  N.  H.  557  ;  Spencer  v.  Har-  S.  328;  Durham  v.  Price,  5  Yerg.  300; 

vey,  17  Wend.  489 ;  Seacord  D.  Mil-  Watkins  v.  Croach,  5   Leigh,  522, 

ler,  13  N.  Y.  55 ;  Wilson  v.  Senior,  547;  Barrows  v.  Hannigan,   1  Mc- 

13  Wis.  380.  Lean,   309 ;    Corney  v.   DeCosta,  1 

8  Stephenson  v.  Primrose,  17  Ala.  Esp.  303;  Whitfield  v.  Savage,  2  B. 

155 ;  Holland  v.  Turner,  10  Conn.  &  P.  277. 

308 ;  Marine  Bank  v.  Smith,  18  Me.  4  Haskell  v.  Boardman, 8  Allen,  38; 
99;  Marshall  v.  Mitchell.  34  Ib.  221 ;  Moses  v.  Ela,  43  N.  H.  557;  Denny  v. 
Lewis  v.  Kramer,  3  Md.  265.  291 ;  Palmer,  5  Ired.  610;  Wilson  v.  Sen- 
Walters  v.  Monroe,  17  Ib.  154 ;  Du-  ior,  14  Wis.  480. 


336  THE  PARTIES  TO  THE  INSTRUMENT. 

of  extension  of  time  to  the  principal  debtor,  or  by  the  sur- 
render or  loss  of  collaterals,  or  release  of  properly  of  the 
principal  seized  upon  execution,  or  by  operation  of  law,  and 
other  recognized  causes  of  discharge,  are  the  same  as  in  the 
case  of  sureties'  and  will  be  found  distinguished  in  the 
notes  of  Chapter  xxiv. 

§  259.  THE  LAW  OF  CONTINUING  GUARANTIES. — If  one 
proposes  to  lend  his  credit  as  guarantor  for  the  benefit  of 
another,  and  wishes  to  restrict  his  liability  to  a  particular 
transaction,  he  should  take  care  to  say  so  clearly  and 
distinctly  in  his  proposition  or  contract  of  guaranty.4  What 
form  of  words  will  constitute  a  "  continuing  guaranty  "  is  a 
question  of  construction.  Such  expressions  as  "  We  hold 
ourselves  responsible  for  the  payment  of  any  suni  not  ex- 
ceeding $5,000  X  may  receive  of  you,"8  or  a  guaranty  to  a  bank 
"  of  all  liabilities  to  said  bank  now  existing  or  which  may 
hereafter  arise,  to  the  extent  of  $25,000," 4  or  where  the 
guarantors  agreed  "  to  be  responsible  to  you  at  any  time 
not  exceeding  $8,000," '  or  a  guaranty  to  A  to  pay  "  uncon- 
ditionally at  all  times,  any  indebtedness  of  B  to  the  extent 
and  not  exceeding  the  sum  of  $10,000  for  any  overdrafts 
now  made,  or  that  hereafter  shall  be  made,"  *  were  declared 
to  be  continuing  guaranties ;  but  "  I  am  willing  to  go  secur- 
ity for  the  amount  of  $2,500,"  was  not.7 

Where  the  contract  for  a  continuing  guaranty  is  in  the 
form  of  a  letter  of  proposed  guaranty  addressed  generally 
or  to  a  particular  person,  notice  of  the  acceptance  of  the 

'Priest  v.  Watson,   75  Mo.  315;  '  Poughkcepsie     City     Bank     v. 

Smith  t.  Rice.  27  Mo.  505;  Bank  of  Phclps,  supra. 

United  States  v.  Hatch,  6  Pet.  250.  «  Lazear  t>.  National  Bank,  52  Md. 

*  Poughkeepsie     City     Bank     v.  78. 

Phelps,    16    Hun,    158;     Rindge  t>.  8  Reynolds   v.  Douglass,    12   Pet. 

Judson,  24  N.  Y.  64;  Clark  v.  Bur-  497. 

clett,  2  Hall,  219;  Mayer  v.  Isaac,  6  •  Davis  v.  Wells.  104  U.  S.  159. 

M.  &  W.  605;  Coles  v.  Pack.  L.  R.  '  Gerson  v.  Hamilton,  80  La.  Ann. 

6  C.  P.  65;  Merle  v.  Wells,  2  Campb.  pt.  1,  737. 
413. 


INDORSEES   AND  GUARANTORS.  337 

same  should  be  given  to  the  guarantor,  and  that  advances 
will  be  made  on  the  faith  of  it.  Such  notice  is  essential  in 
order  to  bind  the  guarantor.1  Notice,  however,  is  not 
required  where  the  contract  of  guaranty  is  founded  upon 
some  independent  consideration  from  the  guarantee,  whether 
for  an  antecedent  debt,  or  for  a  present  or  further  advance.* 
Nor  where  the  agreement  to  accept  is  contemporaneous  with 
the  guaranty.*  The  notice,  when  required,  need  not  be  in 
writing  necessarily,  but  may  be  inferred  from  facts  and  cir- 
cumstances.4 

§  260.  GUARANTIES  OF  CONTRACTS,  VOID  OR  ULTRA 
VIRES. — The  consideration  for  a  guaranty  need  not  be,  in 
the  absence  of  fraud,  for  any  but  a  nominal  sum,  so  long 
as  it  comes  within  the  technical  definition  of  a  "  valuable 
consideration."*  It  must,  however,  be  valid,  for  if  the 
principal  contract  be  void,  or  there  is  an  absolute  want  of 
power  to  enter  into  the  same,  so  that  t\\e  contract  can 
have  no  validity,  no  rights  can  be  acquired  under  a  guaranty 
given  for  its  peiformance.*  A  defense  of  ultra  vires  made 
by  a  borrower  of  money  from  a  corporation,  in  cases  where 
the  funds  obtained,  or  the  benefits  thereof,  are  still  re- 
tained, is  not  approved  by  courts  of  equity.  The  enforce- 
ment of  penalties  affixed  by  statutory  enactments  for 
violations  of  charter  limitations  belongs  especially  to  the 

1  Adams  v.  Jones,  12  Pet.  207,  213;  159 ;  Dutchman  v.  Tooth,  5  Bing.  N. 

Edmonston    v.  Drake,    5    Ib.  624;  Cas.  577. 

Douglass  0.  Reynolds,  7  Ib.  113;  Lee  *  Farmer's   Bank  v.  Lang,  87  N.  Y. 

t>.   Dick,    10  Ib.  483;  Reynolds  v.  209;  Heidenheimer  v.   Meyer,  42  N. 

Douglass,    12  Ib.  497;    Russell  «.  Y.  Supr.  Ct.  506 ;  s.  c.  74  NY.  609; 

Clarke,  7  Cranch,  69;  Davis  V. Wells,  Joslyn  t>.  Dow,  19  Hun.  494;  Bank- 

104  U.  S.  159;  Louisville  Manuf.  Co.  ing  Company  t>.  Rautenberg.  103  111. 

«.  Welch.  10  How.  461.  475.  460;  Penn  v.  Borman,  102  Ib.  523; 

*  Davis  e.  Wells,  104  U.  S.  159.  Worden  «.  Salter,  90  Ib.  160;  Neus- 

1  Wildest).  Savage,  1  Story,  22.  ladt  v.  Hall,  58  Ib.  572;  Starr  t>. 

4  Reynolds  v.   Douglass,    12  Pet.  Earle,    43  Ind.  478 ;  McGregor    v. 
497;  Davis  v.  Wells,  supra.  Railway  Co.  18  Q.  B.  618;  Colman 

5  Lawrence  v.  McCalmut,  2  How.  t>.  Eastern  Counties  Ry  Co.,  10  Beav. 
426,  453;  Davis  «.  Wells,  104  U.  S.  1. 

22 


338  THE  PARTIES  TO  THE  INSTRUMENT. 

government.  This  rule  is  applied  in  cases  where  attempts 
are  made  to  defeat  guaranties  upon  which  money  has 
been  innocently  advanced.  The  lender  may  recover 
thereon  at  least  to  the  extent  of  his  advances.1  A  guaranty 
of  coupons  was  enforced,  although  the  bonds  were  voida- 
ble2 and  usurious  interest  paid  by  indorsers  upon  securing 
discount  of  notes  will  not  defeat  an  absolute  guaranty 
thereof.1  Where  a  guaranty  has  passed  into  the  hands  of 
a  holder  for  value,  without  notice,  it  ceases  to  be  affected 
by  equities  existing  between  the  original  parties.4 

§  261.  ENFORCEMENT  OF  THE  LIABILITY  OF  GUARAN- 
TORS.— Generally,  in  the  absence  of  contract,  express  or 
implied,  to  sue  the  principal  upon  default,  the  liability  of 
the  guarantor  becomes  fixed  at  that  time  without  any  pro- 
ceeding by  the  creditor  to  collect  the  debt  from  the  principal 
debtor.  His  agreement  is,  that  the  principal  shall  pay  the 
debt  at  maturity;  upon  his  default,  the  liability  of  the 
guarantor  at  once  begins.5  Where  such  guaranty  of  pay- 
ment is  absolute,  mere  delay  on  the  part  of  the  creditor  to 
enforce  payment  from  the  principal  debtor  and  to  give 
notice  of  non-payment,  is  no  defense  for  the  guarantor  when 
sued  upon  his  undertaking.6  A  contract  of  guaranty  of 
collection  merely  requires  the  creditor  to  pursue  his  reme- 
dies against  the  principal  debtor  with  reasonable  diligence 


1  Macon  Railroad  Co.  •».  Georgia         *  Lazear  v.  National  Bank.  52  Md. 

Railroad  Co..  63  Ga.   103  ;   Argenti  78. 

v.  San  Francisco  Co.,   16  Cal.  255;          4  Jackson  n.  Foote.   12  Fed.  Rep. 

Baird  v.  Bradley.55  111.  413;  McCluer  37  ;  Stone  v.  Bond,  2  Heisk.  425. 
v.  Railroad  Co.  13  Gray,  124  ;  Cary          •  Singer  Manfg.  Co.  v.    Hester,  71 

v.  Railroad  Co.,  29  Barb.  35  ;  Bissell  Mo.  91 ;  Davis  etc.  Co.  v.  Jones,  61 

v.  Railroad  Co.,  22  N.  Y.  258  ;  Za-  Ib.  409 ;  Forbes  v.  Rowc,  48  Conn, 

briskie  ®.  Railroad  Co..  23  How.  381;  413  ;  Penny  v.  Crane  Bros.  Man.  Co. 

Railroad   Co.  v.  Howard,  7  Wall.  80  111.  244 ;  Stowell  v.  Raymond,  83 

413.  Ib.  120;  Hunter  v.  Moul,  98  Pa.  St. 

*  Connecticut  Mu.  Life  Ins.  Co.  9.  18. 

Railroad  Co.,  41   Barb.  9;  Mann  v.         •  Hooker  v.  Gooding,  86  111.  60. 
Eckford,  15  Wend.  503. 


INDORSEES   AND  GUARANTORS.  339 

to  judgment  and  execution  and  sale,  and  is  applied  in* 
cases  of  ordinary  guaranty  of  payment  of  a  debt.  The  un- 
dertaking of  the  guarantor  in  such  cases  is  to  pay  only 
after  a  judgment  and  execution  against  the  princi- 
pal debtor  have  proved  fruitless.1  The  failure  of  a  creditor 
to  use  due  diligence  to  recover  the  debt  from  the  principal 
debtor  will  defeat  any  right  he  may  have  upon  even  an 
absolute  guaranty  of  payment  indorsed  upon  a  bond.* 
Where  the  maker  of  a  promissory  note  is  openly  insolvent, 
no  suit  is  necessary  to  charge  the  guarantor  ;8  nor,  upon 
default  of  such  insolvent  debtor,  is  notice  required  to  be 
given  by  the  creditor  to  the  guarantor,  as  the  latter  can  not 
be  prejudiced  by  want  of  notice,4  especially  where  the  name 
of  the  guarantor  does  not  appear  upon  the  note.5  The  lia- 
bility of  the  guarantor  and  of  the  principal  being  the  same, 
both  must  take  notice  at  their  peril  of  a  default.6 

§  262.  THE  GUARANTOR'S  LIABILITY  WHERE  CREDITOR 
HOLDS  COLLATERAL  SECURITIES. — A  guarantor  is  not  dis- 
charged by  the  mere  receipt  of  collateral  security  by  the 
holder  of  a  promissory  note,  the  payment  of  which  is  se- 
cured by  his  guaranty.  The  giving  of  such  security  by  the 
maker  is  without  effect  upon  the  independent  obligation  of 

1  Evans  t>.  Bell,  45  Tex.  553  ;  Shep-  393  ;  McDoal  v.  Yeomans,  8  Watts, 

heard  t>.  Phears,  35  Ib.  763  ;  Day  t>.  361;  Bull  v.  Bliss,  30  Vt.  127 ;  Dana 

Elmore.   4  Wis.    190  ;  Moakley  v.  v.  Conant,  Ib.  246  ;  Wclton  v.  Scott, 

Riggs,  19  Johns.  69  ;  Taylor  v.  Bui-  4  Conn.  533  ;   Perkins  v.   Catlin,  11 

len,  6  Cow.  624;  Burt  v.  Fowler,  5  Ib.  213 ;  Randolph  v.  Sherwood,  26 

Barb.  501 ;  Lovcland  v.  Sheppard,  Ib.  437  ;  Forbes  v.  Rowe,  48  Ib.  413; 

2  Hill,  139  ;  Manning  v.  Haight,  15  Gilliiighan  v.  Boardman,  29  Me.  79; 

Barb.  76  ;   Newell  v.  Fowler,  23  Ib.  Sanford  v.  Allen,  1  Cush.  473 ;  Wren 

628;  Cadyt;.   Sheldon,   38  Ib.  102  ;  v.  Pierce,  4  8.  &  M.  91. 
Griffith  v.  Robertson,  15  Hun,  344  :          *  Gibbs  v.  Cannon,  9  S.  &,  R.  198; 

N.  F.  Ins.   Co.  v.  Wright,   76  N.  Y.  Reynolds  v.  Douglass,  12  Pet.  497. 
445.  6  Reynolds  v.  Douglass,  supra. 

*  Seipple's  App.  100  Pa.  St.  (14  C.          6  Gage  v.  Lewis,  68  111.  604;  Doug- 

L.  J.  417.)  lass  v.  Howland,  24  Wend.  35 ;  Ham- 

»  Crag  «.  Parkis,  40  N.  Y.  (1  Hand)  mond   v.  Gilmore,    14  Conn.  479; 

181 ;  McClerg  v.  Fryer,  15  Pa.  St.  Somersall  t>.  Barnaby,  Cro.  Jac.  287. 


340  THE  PABTIES  TO  THE  INSTRUMENT. 

the  guarantor.  The  creditor  or  holder  of  such  note  is  not 
required  to  resort  to  the  securities  of  the  maker  as  an  ab- 
solute preliminary  to  his  action  against  the  guarantor.  The 
only  pre-requisite  to  such  action  is  that  the  principal 
shall  have  made  default.1  The  guarantor  is  required  first 
to  pay  the  debt  before  he  can  insist  upon  the  enforcement 
of  such  security ;  or  he  must  be  so  damnified  that  it  would 
be  inequitable  to  refuse  him  subrogation  thereto.9  If  the 
contract  of  the  guarantor  be  that  of  mere  collection  and  not 
of  payment,  the  creditor  holding  securities  from  the  princi- 
pal debtor  for  the  payment  of  the  note  is  required  to  en- 
force the  same,  if  they  can  be  realized,  before  resort  is  hud 
as  against  the  guarantor  upon  his  personal  obligation.* 

1  Penny  v.  Crane  Bro.  Manuf.  Co.  •  Darst  «.  Bates,  51  111.  439. 

80  111.  244;  Sigourney  v.  Wethcrell,  •  Vanderbilt  v.  Schreyer,  2l  Hun, 

6  Met.  553 ;  Forbes  ».  Row«,  48  Conn.  537;  Borden  v.  Gilbert,  13  Wis.  670. 
413;  Weltonfl.  Scott  4Ib.533. 


PAET  IV. 


QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


Div  I. — CERTIFICATES  OF  STOCK. 
CHAPTER  XXVI. 

THE  CERTIFICATE  OF  STOCK. 

£263.  Documents  of  title,  under  indorsement,  ns  collateral  security. 

264.  The  certificate  of  stock. 

265.  The  certificate  of  stock  quasi-negotiable. 

266.  And  approximating  to  negotiable  paper — Bank  v,  Lanier. 

267.  Indorsements  in  blank  of  stock  certificates. 

268.  Blank  transfers  of  stock  certificates  in  England. 

§  26 3.  DOCUMENTS  OP  TITLE,  UNDER  INDORSEMENT,  AS 
COLLATERAL  SECURITY.  —  It  has  become  a  very  common 
transaction  in  the  commercial  world  to  use  documents  and 
indicia  of  title,  quasi-negotiable  under  blank  indorsement, 
as  certificates  of  stock,  bills  of  lading,  warehouse  and  cotton- 
press  receipts,  and  other  like  symbols  of  property,  as  collat- 
eral security  for  the  payment  of  loans  and  discounts  of 
commercial  paper.  Such  collateral  securities  are  readily 
converted  into  funds,  and  the  value  thereof  is  easily  deter- 
mined by  the  quotations  of  the  great  exchanges.  The  rules 
of  estoppel  in  pais,  or  equitable  estoppel,  are  invoked  for  the 
protection  of  the  pledgee  for  value,  without  notice,  of  such 

(341) 


342         QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

quasi-negotiable  collateral  securities.  The  representations 
contained  in  such  documents  of  title,  under  indorsement  in 
blank  and  delivery,  are  regarded  as  of  equal  weight  as  rep- 
resentations contained  in  commercial  paper,  and  the  transfer 
thereof  carries  some  of  the  privileges  enjoyed  by  the  indorsee 
for  value  of  negotiable  securities.  An  innocent  pledgee  for 
value  of  certificates  of  stcck,  thus  indorsed  in  blank,  with  an 
irrevocable  power  of  attorney  to  transfer,  is  vested  with  an 
unimpeachable  title  to  the  shares  of  stock.  The  presumption 
arises  by  the  possession  of  certificates  of  stock  indorsed  in 
blank,  that  the  pledger  is  the  owner,  although  the  certificate 
and  indorsement  are  in  the  name  of  another  person.  The 
pledgee's  title  is  protected  as  against  the  owner  in  cases  of 
fraud  and  misappropriation,  where  such  owner  through 
his  mistaken  confidence  has  entrusted  to  a  third  person 
documents  or  indicia  of  property,  indorsed  in  blank,  so  that 
he  has  the  legal  title  and  apparent  ownership,  and  is 
thus  enabled  to  deceive  an  innocent  pledgee  advancing 
his  money  upon  the  faith  thereof.  The  rules  of  equitable 
estoppel  are  also  applied  in  favor  of  the  bona  fide  pledgee 
for  value  of  bills  of  lading,  warehouse  receipts,  cotton-press 
notes,  and  other  quasi-negotiable  collateral  securities.1 


'National  Bank    v.  Watsontown  63  Ala.  243;  Allen  0.  Maury,  66  Ib. 

Bank,  105  U.  S.  17;  Pollard  v.  Vin-  10;  Smith  v.  Crescent  City  Transfer 

ton,  Ib.  5;  Johnston  t.  Laflin,  103  Co.  30  La.  Ann.  1378;  State  v.  North 

Ib.  800;  Shaw  v.  Railroad  Co.  101  L.  Ry  Co.  34  Ib.  947;  Bank  of  Hoi- 

Ib.  504;  McAllister  v.  Kuhn,  96  Ib.  ly  Springs  v.  Pinson,  58  Miss.  421  ; 

89;  National    Bank   r>.    Larier,   11  National    Bank    v.   Dearborn,    115 

Wall.  377;  The  Thames,  14  Ib.  98;  Mass.  229  ;    Stollenwerck    v.  That- 

Matthews  v.  National  Bank,  Holmes,  .cher,  Ib.  224;  Cornick  v.  Richards, 

396;  Continental  Nat.  Bank  v.  Elliot  3  Lea,  1;  Cherry  v.  Frost,  7  Ib.  1  ; 

Nat.  Bank,  7  Fed.  Rep  369;  Winter  First  Nat.  Bank  v.  Bryce,  78  Ky.42; 

«.  Belmont  Mining  Co  53  Cal.  428;  Prall    v.  Tilt.  28    N.   J.   Eq.  483; 

Bridgeport  Bank  v.  N.  Y.  &  N.H.  R.  Wood's  App.  92  Pa.  St.  879 ;  Burton 

R  Co.  30  Conn  270 ;  N.  Y.  &  N.  H.  v.  Patterson,  12  Phila.  397  :  Burton's 

R  R.  Co.  v.  Schuylcr,  34  N.  Y.  30;  App.    93    Pa.    St.    214;    Fraser    v. 

Commercial  Bank  v.  Kortright,  22  Charleston,  11  S.  C.  486;  Merchants' 

Wend.  348;  McNeil  v.  Tenth  Nat.  Bank  v.  Richards,  6  Mo.  App  454; 

Bank,  46  N.  Y.  325;  Locb  o.  Peters,  Ross   v.    Southwestern  Ry.  Co.  58 


THE  CERTIFICATE  OF   STOCK.  343 

§264.  THE  CERTIFICATE  OF  STOCK. —  A  certificate  of 
stock  is  a  muniment  of  title  ;  documentary  evidence  of  the 
ownership  of  shares  of  the  capital  stock  of  the  corporation 
issuing  the  same.  By  an  indorsement  in  blank  and  delivery  of 
the  certificate,  the  shares  of  stock  represented  thereby  become 
payable  to  bearer  ;  the  certificates  may  pass  from  one  person 
to  another  like  commercial  paper  so  payable.  The  issue  of 
such  certificates,  properly  authenticated,  is  all  that  a  corpo- 
ration can  do  to  show  the  interest  of  any  person  in  its  shares 
of  stock.  Such  certificates  are  not  shares  of  stock  ;  and  a  title 
to  shares  may  exist  without  a  certificate.1  Such  certificates 
are  a  solemn  affirmation  under  the  seal  of  the  company  that 
a  certain  number  of  shares  of  the  stock  stand  in  the  name 
of  the  individual  mentioned  in  the  certificate.*  A  share  of 
stock  itself  is  a  species  of  incorporeal,  intangible  property, 
in  the  nature  of  a  chose  in  action,  which  can  never  be  real- 
ized except  upon  the  dissolution  and  winding  up  of  the  cor- 
poration, and  in  the  meantime  entitles  the  holder  to  profits 
declared  as  dividends.3  A  certificate  of  stock  may  be  the 
subject  of  pledge,4  and  the  expression  loan  or  discount  on  a 

Geo.   514  ;  Tiedeman  v.  Knox,   53  Beecher  v.  Wells  etc.  Co.  1  McCrary, 

Md.  6V2;  Holmes  t>.  Bailey,  92  Pa.  62;  Cornick  v.  Richards,  3  Lea,  1; 

St.  57;  Farmers'  Bank  v.  Logan,  74  State  v.  North  Louisiana  &  T.  R.  R. 

N.  Y.  568 ;  Becker  v.  Hallgarten,  86  Co.  34  La.  Ann.  947 ;  White  «.  Salis- 

Ib.  167 ;  First  Nat.  Bank  ®.  Northern  bury,  33  Mo.  150 ;  Agricultural  Bank 

R.  R.  Co.  58  N,  H.    203;  Security  v.  Burr,  11  Shepl.  263  ;  Chester  Glass 

Bank  v.   Luttgren,  29  Minn.   363 ;  Co.  v.  Dewey,  16  Mass.  94 ;  Burrall 

Emery's  Sons,  v.  Irving  Nat.  Bank,  v.  Bushwick,   75  N.    Y.   211,  216; 

25  Ohio  St.  360 ;  Cheever  v.  Meyer,  Cheever  v.  Meyer,  52  Vt.  66 ;  Strange 

52  Vt.  66 ;    Shropshire  Unions  Ry.  v.  Houston  &  T.  Ry.  Co.  53  Tex.  162. 

Co.  v.  Queen,  L.  R.  7  H.  L.  496 ;  •  Shropshire  Unions  Rys.    Co  v. 

France  v.  Clark,  L.  R.  22  Ch.  D.  830;  Queen,  L.  R.  7  H.  L.  496  (Cairns, 

Grissell  v.  Bristowe,  L.  R.  3  C.  P.  L.  C.) 

112;  Gurney  v.  Behrecd,  3  El.  &B1.  »Neiler  v.  Kelly,  69  Pa.  Si.  407; 

633 ;  Glyn,  Mills  &  Co.  v.  East  &  W.  Cherry  v.  Frost,  7  Lea,  1 ;  Cheever  ®. 

India  Docks  Co.  L.  R.  7  App.  591.  Meyer,  52  Vt.  66. 

1  National   Bank  v.  Watsontown  *  Dayton  Nat.  Bank  v.  Merchants' 

Bank.  105  U.  S.  17,  22  ;  McAllister  Nat.  Bank,  37  Ohio  St.  208 ;  Pinker- 

«.    Kuhn,    96    U.    S.  89 ;    Hubbell  ton  v.  Railroad  Co.  42  N.  H.  424 ; 

0.    Drexel,     11     Fed.    Rep.    115  ;  Colt  v.  Ives,  31  Conn.  25  ;  Wilson  v. 


344          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

pledge  of  stock  means  that  the  stock  of  the  person  obtaining 
the  loan  is  expressly  and  specifically  pledged  at  the  time  for 
its  repayment.1 

§  265.  THE  CERTIFICATE  OP  STOCK  QUASI-NEGOTIABLE. 
— A  certificate  of  stock,  when  indorsed  with  an  irrevocable 
power  of  attorney  to  transfer,  signed  in  blank  by  the  owner, 
has  a  species  of  negotiability  which  is  rather  quasi-negotia- 
ble than  actually  negotiable.  Under  the  enforcement  of 
the  rules  of  estoppel,  such  indorsements  in  blank  render 
certificates  of  stock  almost  negotiable.9  Certificates  of  stock 
bearing  upon  the  face  thereof  the  representation,  under  seal  of 
the  corporation  issuing  the  same,  that  no  transferof  the  shares 
of  stock  represented  thereby  will  be  made  except  upon  the 
surrender  and  cancellation  of  the  certificate,  is  an  intimation 
to  all  the  world  that  such  certificates  are  intended  for  circu- 
lation. Innocent  persons  advancing  value  upon  such  state- 
ments have  an  equitable  claim  that  any  loss  resulting  from 

Little,  2  N.  Y.  443  ;  Cornick  «.  Rich-  Nat.  Bank,  7  Fed.  Rep.  369,  372; 

ards,  3  Lea.  1 ;  Conyngham's  App.  Duke  v.  Cahawka  Nav.  Co.  10  Ala. 

57  Pa  St.  474;  Otis  v.  Gardner,  105  82;   Ross  v.  Southwestern  Ry.  Co. 

111.  436;  Brewster  v.  Hartley,  37  Cal.  53  Geo.  514;  N.  Y.  &  N.  H.  R.RCo. 

15;  Mechanics'  Bldg.  Assn.  v.  Con-  t>.  Schuyler,  34  N.  Y.  30;  McNeil  ». 

over,  14  N.  J.  Eq.  219;  Heaths  Sil-  Tenth  Nat.  Bank,   46  N.  Y.  325; 

verthorne  Co.  39  Wis.  147;  Nisbit®.  Fraser  ».  Charleston.  11    8.  C.  486; 

Macon  Bank  etc.  Co.  12  Fed.  Rep.  Broadway  Bank  v.  McElrath,  13  N. 

686.     To  an  amount  approximating  J.  Eq.  24;  Prall  v.  Tilt,  28  Ib.  483; 

their  market  value,  with  a  reason-  Mount  Holly  Turnpike  Co.  v.  Ferree, 

able  margin  for   possible  deprecm-  17  Ib.  117;  Tome  v.   Parkersburgh 

tion.    Smith  v.  Crescent  City  Trans-  Ry.  Co.  39  Md.  36;  Atkinson  v.  At- 

fer  Co.  30  La.  Ann.  1378;  Markham  kinson,   8    Allen,    15;    Merchants' 

v.  Jaudon,  41  N.  Y.  235.  Bank  »  Richards,  6  Mo.  App.  454; 

1  Van  Sands  v.  Middlesex  County  Smith  v.  Crescent  City  Transfer  Co. 

Bank,  26  Conn.  144,  157.  30  I.a.  Ann.  1378;  Thompson  v.  To- 

*  Wood's  App.  92  Pa.  St  379;  Fin-  land,  48  Cal.  99;  Winter  v  Belmont 

ney's  App.  56  Ib.  398;  Burton's  App.  Mining    Co.  53  Ib    428;    Black  v. 

93  Ib.  214;  Biddle  v.  Bayard,  13  Ib.  Zacharie,  3  How.  483;  Bank  «.  La- 

150;  Burton  v.  Patterson,  12  Phila.  nier,    11    Wall.   369;    Johnston    c. 

397,  400;  Matthew  t>.  Bank,  Holmes,  Laflin,  103  U.  S  800. 
396;  Continental  Nat.  Bank  v.  Eliot 


THE  CERTIFICATE  OF  STOCK.  345 

giving  credit  thereto  should  fall  on  the  company  rather  than 
on  them.1  Shares  of  stock  or  scrip  made  negotiable  by 
indorsement  by  the  terms  thereof,  or  "  cost-book"  mining 
shares,  are  negotiable  instruments.*  In  the  absence,  however, 
of  any  application  of  the  rules  of  equitable  estoppel,  a  cer- 
tificate of  stock,  although  indorsed  in  blank,  and  in  the 
hands  of  an  innocent  indorsee  for  value  advanced,  is  not  a 
negotiable  instrument  within  the  meaning  of  the  law  mer- 
chant, and  its  indorsee  is  not  charged  with  the  duties  and 
responsibilities  nor  does  he  enjoy  all  the  privileges  of  a 
holder  for  value,  without  notice,  of  commercial  paper.8 

§266.  AND  APPROXIMATING  TO  NEGOTIABLE  PAPER — 
BANK  v.  LANIER. — In  the  leading  case  of  the  First  National 
Bank  v.  Lanier4  decided  by  the  Supreme  Court  of  the 
United  States,  the  nature  and  characteristics  of  certificates 
of  stock  were  ably  stated  by  the  court  (Davis,  Jus.)  The 
court  say :  "  The  power  to  transfer  their  stock  is  one  of 

1  Willis  v.  Philadelphia  Street  Ry.  which  A  was  a  member.  The  plcdg- 

Co.  13  Phila  33.  or,  retaining  the  certificate,  executed 

9  Jarvis  v.  Rogers,  13  Mass.  105 ;  a  separate  power  of  attorney  author- 

s.  c.  15  Ib.  389;  Walker  v.  Bartlett,  izing  his  attorney  in  fact  to  sell  and 

18  C.  B.  845;  Thompson  v.  Tolland,  transfer  the  stock  in  case  the  pledgee 

48  Cal.  99.  considered  it  necessary,  and  to  ap- 

s  Mechanics'  Bank  v.  N.  Y.  &  N.  propriate  the  proceeds  in  payment 

H.  Co.  13  N.  Y.  599,  023;   Weaver  v.  of  any  balance  due.    The  pledger 

Barden,  49  Ib.  286;  Stebbins  v.  In-  afterwards  disposed  of  the  certificate 

surance  Co.  3  Paige  Ch.  350;  Sewall  to  Lanier  and  Handy  for  the  full 

v.  Boston  Water  Power  Co  4  Allen,  value  thereof.     Before  the  sale  the 

277,  282  ;  Shaw  v.  Spencer,  100  Mass.  bank  had  sold  5  >  of  the  shares,  and 

382,  388;    Campbell  v.   Morgan,  4  before  notice  thereof  sold   all   the 

Bradw.  100.  shares,  under  the  power  of  sale  to 

4 11   Wall.  J377.    A  certificate  of  innocent  purchasers  for   value,    :o 

stock  for  150  shares,  which  stated  whom    it    issued    new    certificates, 

on  its  face  that  it  was  transferable  Two  years  after  their  purchase  La- 

"only  upon  the  surrender  of  the  certi-  nier  and  Handy  demanded  trans  er 

ficate,"  was  issued  by  a  bank  to  A,  of  the  stock  to  their  names,  but  the 

who  at  the  same  time  pledged  the  bank  refused.  The  bank  was  mulcted 

same  to  the  bank  as  collateral  secur-  in  the  damages, 
ity  for  deposits  made  with  a  firm  of 


346          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

the  most  valuable  franchises  conferred  by  Congress  on 
banking  associations.  Without  this  power,  it  can  readily 
be  seen  the  value  of  the  stock  would  be  greatly  lessened, 
and,  obviously,  whatever  contributes  to  make  the  shares  of 
the  stock  a  safe  mode  of  investment,  and  easily  convertible, 
tends  to  enhance  their  value.  It  is  no  less  the  interest  of 
the  shareholder,  than  the  public,  that  the  certificate  repre- 
senting his  stock  should  be  in  a  form  to  secure  public  con- 
fidence, for  without  this  he  could  not  negotiate  it  to  any 
advantage.  It  is  in  obedience  to  this  requirement,  that 
stock  certificates  of  all  kinds  have  been  constructed  in  a 
way  to  invite  the  confidence  of  business  men,  so  that  they 
have  become  the  basis  of  commercial  transactions  in  all  the 
large  cities  of  the  country,  and  are  sold  in  open  market  the 
same  as  other  securities.  .Although  neither  in  form  or 
character  negotiable  paper,  they  approximate  to  it  as  nearly 
as  practicable.  If  we  assume  that  the  certificates  in  ques- 
tion are  not  different  from  those  in  general  use  by  corpora- 
tions, and  the  assumption  is  a  safe  one,  it  is  easy  to  see  why 
investments  of  this  character  are  sought  after  and  relied 
upon.  No  better  form  could  be  adopted  to  assure  the  pur- 
chaser that  he  can  buy  with  safety.  He  is  told,  under  the 
seal  of  the  corporation,  that  the  shareholder  is  entitled  to  so 
much  stock,  which  can  be  transferred  on  the  books  of  the 
corporation,  in  person  or  by  attorney,  when  the  certificates 
are  surrendered,  but  not  otherwise.  This  is  a  notification 
to  all  persons  interested  to  know,  that  whoever  in  good 
faith  buys  the  stock,  and  produces  to  the  corporation  the 
certificates,  regularly  assigned,  with  power  to  transfer,  is 
entitled  to  have  the  stock  transferred  to  him.  And  the 
notification  goes  further,  for  it  assures  the  holder  that  the 
corporation  will  not  transfer  the  stock  to  any  one  not  in 
possession  of  the  certificates." 

§  267.  INDORSEMENTS  IN  BLANK  OP  STOCK  CERTIFI- 
CATES.— A  transfer  of  shares  of  stock  in  a  corporation  by 
the  delivery  of  the  certificate,  with  an  irrevocable  power  of 


THE  CERTIFICATE  OF   STOCK. 


347 


attorney  to  transfer  in  blank  indorsed  and  signed  by  the 
owner,  vests  the  legal  and  equitable  title  thereto  in  the 
innocent  holder  for  value  without  notice,  and  such  certifi- 
cate may  pass  from  hand  to  hand.1  Nor  is  a  seal  necessary 
to  authorize  a  transfer,  in  the  absence  of  some  statutory 
requirement  for  its  use.8  Even  when  the  indorsement  in 
blank  is  made  under  seal,  the  blanks  may  be  filled  up  in 
accordance  with  the  agreement  of  the  parties  at  the  time.3 
No  constructive  notice  of  any  equities  of  third  persons  is 
charged  as  against  a  pledgee  for  value  of  a  certificate  of 
stock,  from  the  fact  that  it  shows  upon  its  face  that  it  was 
issued  to  another  person  than  the  pledger  and  that  the  in- 
dorsement thereof  is  in  blank.4 


Considering   the  effect  of  negotiating  a    certificate  of 
stock  indorsed  in  blank,  in  Johnston  v.  Laflin,5  the  United 


1  Carroll  v.  Mullanphy  Savings 
Bank,  8  Mo.  App.  249  ;  Matthews  v. 
Bank,  Holmes,  396;  Mount  Holly 
Co.  «.  Ferree,  17  N.  J.  Eq.  117 ;  R. 
R.  Co.  «.Bank,  30  Conn.  273;  Kort- 
right  v.  Bank,  20  Wend.  91 ;  s.  c.  22 
Ib.  348;  Leavitt  v.  Fisher,  4  Duer,  1; 
R.  R.  Co.  v.  Selinger,  34  N.  Y.  45; 
McNeil  v.  Bank,  46  Ib.  325  ;  Cutting 
v.  Damerel,  88  Ib.  410;  Leitch  v. 
Wells,  48  Ib.  613;  German  Union 
Bldg.  Assn.  v.  Sendmeyer,  50  Pa.  St. 
67;  Otis  v.  Gardner,  105  111.  536; 
Day  v.  Holmes,  103  Mass.  306  ;  Cor- 
nick  v.  Richards,  3  Lea,  1 ;  Cherry  v. 
Frost,  7  Ib.  1. 

9  Kortright  v.  Buffalo  Bank,  20 
Wend.  91 ;  s.  c.  22  Ib.  348. 

*  Matthews  t>.  National  Bank,  sup- 
ra ;  Bridgeport  Bank  v.  N.  Y.  &  N. 
H.  R.  R.  Co.  30  Conn.  274,  5. 

4  Burton  v.  Peterson,  12  Phila  397. 

5 103  U.  S.  800.  Laflin  sold  his 
stock  in  a  bank  to  a  broker,  indors- 
ing the  certificates  in  blank;  the 


broker  sold  them  to  B  .  who  was  the 
president  of  the  bank,  issuing  the 
stock,  receiving  his  individual 
check,  and  delivering  the  certificate. 
Immediately  after  the  transaction 
B.  caused  his  check  to  be  charged 
against  the  bank,  and  entered  his 
name  on  the  stock  book  as  "trustee 
of  the  bank."  The  bank  subsequently 
failed,  and  a  receiver  was  appointed, 
who  sought  unsuccessfully  to  compel 
B.  to  re-convey  the  shares,  and  that 
Laflin  should  repay  the  price,  and  be 
declared  to  be  a  stockholder.  Laflin 
was  free  from  fraud  in  the  transac- 
tion. The  court  add:  "  It  would  be 
a  perversion  of  justice  and  of  the 
ordinary  rules  governing  men  in 
commercial  transactions  to  hold  the 
sale,  under  such  circumstances, 
vitiated  by  the  relation  of  the  pur- 
chaser to  others,  of  which  the  seller 
had  no  knowledge,  or  any  grounds 
to  eutertain  a  suspicion.  The  valid- 
ity of  the  sale  of  stock  can  not  be 


848          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

States  Supreme  Court  (Field,  Jus.)  say  :  **  The  trans ferabil- 
ity  of  shares  in  the  national  banks  is  not  governed  by  different 
rules  from  those  which  are  ordinarily  applied  to  the  trans- 
fer of  shares  in  other  corporate  bodies.  The  power  of  at- 
torney indorsed  on  the  certificate  is  usually  written  or 
printed,  with  a  space  in  blank  for  the  name  of  the  attorney 
to  be  inserted,  for  the  accommodation  of  the  purchaser. 
The  subsequent  filling  up  of  the  blank  by  him  with  another 
name,  instead  of  his  own,  as  it  may  suit  his  convenience, 
does  not  so  connect  the  vendor  with  the  party  named  as  to 
charge  him  with  the  latter's  knowledge  and  thus  affect  the 
previous  transaction.  A  different  doctrine  would  put  a 
speedy  end  to  the  signing  of  powers  of  attorney  in  blank. 
And  instruments  of  that  kind  are  of  great  convenience  in 
the  sale  of  shares  of  incorporated  companies,  and  are  in 
constant  use.  The  name  with  which  the  blank  may  be  sub- 
sequently filled  up  by  the  purchaser  is  not,  in  practice, 
regarded  as  affecting  the  previous  sale  in  any  respect,  but 
as  a  matter  which  concerns  only  the  purchaser.  It  would 
be  a  source  of  disturbance  in  business  if  any  other  result 
were  attached  by  the  law  to  the  proceeding." 

§  268.  BLANK  TRANSFERS  OF  STOCK  CERTIFICATES  IN 
ENGLAND. — The  validity  of  transfers  of  stock  indorsed  in 
blank  was  recognized  in  England  in  an  early  case.1  The 
rule  in  that  country  is,  that  where  an  owner  of  shares  of 
stock  obtains  a  loan  of  money  depositing  with  the  lender 
certificates  of  his  shares,  together  with  transfers  thereof 
signed  by  him,  but  with  the  date  and  name  of  the  trans- 
feree in  blank,  an  implied  authority  is  given  the  pledgee 

made  to  depend  upon  the  accident  with  the  secret  interests  of  others  in 

of  the  immediate  purchaser,  or  of  the  shares  purchased.    The  validity 

the  party  to  whom  he  may  transfer  of  a  sale  aud  its  completeness  must 

the  certificate,  in  fill'rngup  thcbltmk  be  determined  by  the  relation  which 

in  the  power  of  attorney  with  the  the  contracting  parties  at  the  time 

name  of  the  person,  to  make  the  openly  bear  to  each  other." 

formal  transfer,  who  is  acquainted  '  Walker  v.  Bartlett,  15  C.  B.  845. 


THE  CERTIFICATE  OP  STOCK.  349 

to  fill  up  such  blanks  so  that  he  may  be  able  to  make  his 
security  effective.  Such  transfers  in  blank  pass  the  legal 
interest  in  the  shares,  if  the  articles  of  association  do  not 
require  a  deed.1  The  availability  of  a  blank  indorsement 
of  a  certificate  of  stock  to  pass  the  legal  title  thereto  is  not 
restricted  to  the  first  pledge  thereof.  Under  such  blank 
indorsement  a  sub-pledgee  may  fill  in  such  blanks  and  obtain 
new  certificates.*  Where,  however,  the  transfer  of  the 
certificates  to  a  sub-pledgee,  although  with  blank  indorse- 
ment, is  not  complete  so  as  to  vest  the  legal  title  until  after 
notice  of  the  rights  of  the  owner,  the  sub-pledgee  is  not  en- 
titled to  a  transfer,  although  his  equitable  interest  is  pro- 
tected to  the  amount  of  the  original  loan.8 

1  Evans  v.  Wood,  L.  R.  5  Eq.  539 ;  *  In   re   Tahiti  Cotton  Co.  L.  R. 

in  re  Tahiti  Cotton  Co.  17  Ib.  273 ;  17  Ib.  539. 

Paine   v.  Hutchinson,  L.  It.  3  Eq.  'Prance  v.  Clark,  L.  R.  22  Ch.  D. 

557  ;  s.  c.  3  Ch.  388  ;  Grissell  ».  Bris-  830;  aff.  by  the  Court  of  Appeal  (Earl 

(owe,  L.  R.  8  C.  P.  112 ;  Hawkins  v.  Selborne,  L.  C.)  26  Ib.  257. 
Mntly,  L.   R.   4  Ch.  200;   Coles  v. 
Bristowe,  Ib.  3,  13. 


350          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 


CHAPTER  XXVII. 

THE  PLEDGEE  OF  STOCK  A  HOLDER  FOR  VALUE. 

§269.  The  pledgee  of  certificates  of  stock  indorsed  a  bolder  for  value. 

270.  Title  of  innocent  bolder  for  value  unimpeachable. 

271.  Tbe  pledgee's  demand  for  transfer  by  tbe  corporation 

272.  The  transfer  of  stock  certificates,  as  between  pledger  and  pledgee. 

273.  Transfer  of  stock  on  the  books  of  tbe  corporation. 

274.  Limitations  of  company's  right  to  control  transfer. 

275.  Transfer,  as  controlled  by  the  terms  of  certificate. 

276.  The  pledge  of  stock  by  delivery. 

277.  The  pledge  by  delivery  merely,  subject  to  equities. 

278.  Pledgees  of  stock  not  affected  by  insolvency  of  pledger. 

279.  Pledges  of  stock  for  antecedent  debt  and  future  advances. 

280.  The  pledgee  of  stock  certificates  entitled  to  dividends. 

281.  Pledgee  of  stock  entitled  to  protect  the  corporation's  property . 

§269.  THE  PLEDGEE  OF  CERTIFICATES  OF  STOCK  IN- 
DORSED, A  HOLDER  FOR  VALUE. — The  pledgee  of  cer- 
tificates of  stock,  receiving  the  same  indorsed,  with  an  irre- 
vocable power  of  attorney  to  transfer,  in  good  faith,  without 
notice,  and  for  value  advanced  thereon,  is  entitled  to  the 
privileges  of  a  bona  fide  purchaser  for  value,  in  the  usual 
course  of  business.  Such  indorsement  and  delivery  of  cer- 
tificates of  stock  as  collateral  security  vests  the  legal  and 
equitable  title  in  the  pledgee  and  he  holds  the  absolute  own- 
ership of  the  shares  of  stock  represented  thereby.  His  title, 
when  he  has  advanced  value  in  good  faith,  without  notice, 
cannot  be  impeached,  although  the  act  of  pledge  be  a  fraud 
and  misappropriation  of  such  certificates  of  stock  by  persons 
entrusted  therewith  so  as  to  have  the  apparent  ownership.1 

1  Otis  v.  Gardner,   105    111.  486 ;      Carroll  v.  Mullanphy  Banking  Co.  8 
Baldwin  t>.  Canfield,  26  Minn.  43;      Mo.  App.  249;  First  Nat.  Bank  v. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.       351 

The  title  thus  acquired  by  an  innocent  pledgee  for  value  of 
stock  collaterals  is  sustained  as  between  the  parties,  and  (in 
the  absence  of  restrictive  statutory  or  charter  provisions)  as 
against  the  company  and  third  parties  seeking  by  legal  process 
to  subject  such  shares  of  stock  to  the  payments  of  debts  or 
other  liabilities  of  the  pledger,  although  no  transfer  thereof 
has  been  made  on  the  books  of  the  company  issuing  the 
same,  or  notice  given.1 

§  270.  TITLE  OP  INNOCENT  HOLDER  FOR  VALUE  UN- 
IMPEACHABLE.— It  is  established  by  commercial  usage  that  a 
certificate  of  stock  indorsed  with  an  irrevocable  power  of  attor- 
ney in  blank  or  filled  up,  is,  in  the  hands  of  a  third  person, 
presumptive  evidence  of  ownership  of  the  holder.  The 
title  of  an  innocent  holder  for  value,  and  in  the  usual 
course  of  business,  having  possession  of  the  certificate, 
indorsed  to  himself  or  in  blank,  is  good  against  the  world. 
Subsequent  purchasers  of  such  certificates,  although  paying 
value,  but  not  receiving  the  certificates ;  the  company  issuing 
the  stock,  when  a  transfer  is  demanded  by  such  holder  for 
value  without  notice ;  and  creditors  of  the  pledgor  and  trans- 
ferrer,  are  not  allowed  to  impeach  the  title  of  such  innocent 
holder  for  value.*  The  transfer  of  certificates  of  stock,  iu- 

Hartford  Ins.  Co.  45  Conn.  22  ;  Cor-  454 ;    Cornick  v.  Richards,   3  Lea, 

nick  v.  Richards,  3  Lea,  1;  Cherry  1. 

p.  Frost,  7  Ib.  1 ;    Frascr  v.  Charles-          'Johnston    v.   Laflin,    103   U.    S. 

ton,  11  S.  C.  486;  ex  parte  Bank  of  800;  Webster  v.  Upton,  91  U.  S.  65  ; 

Manchester,  L.  R.  12  Eq.  354;  Frascr  Bank  v.  Lanier,  11  Wall.369;  Dovey's 

v.  Charleston,  11  S.  C.486:  Checver  App.  97  Pa.  St.  53;  Wood's  App.  93, 

v.  Meyer,  52  Vt.  66;  ex    parte  Sar-  Ib.    379;    Kortright  v.  Commercial 

geaiit,    L.  R:  17  Eq.  273;  ex  parte  Bank,  20  Wend.  91  ;  Fatnian  v.  Lo- 

Agra  Bank,  L.  R.  3  Ch.  555.  back,   1  Duer,  354,  361 ;  McNeil  v. 

'National  Bank  v.   Watsontown  Tenth    Nat.  Bank,  46  N.  Y.  325; 

Bank,  105  U.  S.  217,  222 ;  Johnston  Bank  of  Utica  v  Smalley,  3  Cowcn, 

v.  Laflin,  103  U.  S.  800;  Hasbrouck®.  770;  Mount  Holly  Turnpike  Co.  •». 

Vandervoort,  4  Sandf.  74;  Fiuney's  Ferree,  17  N.  J.  Eq.  117;    Prall  v. 

App.    59    Pa.    St.  398;     Fraser  v.  Tilt,  28  Ib.  480;  Bridgeport  Bank  v. 

Charleston,  11  S.  C.  486;  Merchants'  N.  Y.  &  N.  H.  Ry.  Co.  30  Conn.  275, 

Nat.  Bank  v.  Richards,  6  Mo.  App.  Sergeant  v.  Franklin  Ins.  Co.  8  Pick, 


352          QUASI-NEGOTIABI E  COLLATERAL  SECURITIES. 

dorsed,  under  the  general  usage  of  dealers  in  securities  and 
on  exchanges,  vests  in  the  holder  for  value,  without  notice, 
more  than  the  mere  equitable  title  obtained  upon  the  assign- 
ment and  delivery  of  a  non-negotiable  chose  in  action.  The 
legal  ownership  vests  in  the  indorsee  of  a  stock  certificate, 
indorsed  in  blank,  as  in  the  case  of  the  favored  instruments 
of  commerce.  Nor  will  the  transfer  be  "  burdened  with  the 
shackles  imposed  by  a  lis  pendens."  ' 

§  271.  THE  TRANSFER  OF  STOCK  CERTIFICATES,  AS  BE- 
TWEEN PLEDGOR  AND  PLEDGEE. — As  between  the  parties  to 
the  contract  of  pledge,  the  delivery  of  a  certificate  of  stock, 
indorsed  by  the  owner  with  an  irrevocable  power  of  attorney 
to  transfer  in  blank,  vests  in  the  pledgee,  upon  a  bor.a  fide 
advance,  the  legal  title  to  the  shares  of  stock  represented  by 
the  certificate,  although  no  notice  is  given  to  the  corpora- 
tion issuing  the  certificate,  nor  transfer  obtained  upon  its 
books.  It  is  enough,  as  between  the  parties,  that  the  cer- 
tificate is  delivered  with  authority  to  the  holder,  or  any  one 
he  may  name,  to  transfer  it  upon  the  books  of  the  company, 
the  consideration  for  the  indorsement  and  delivery  of  the 
certificate  being  advanced  in  good  faith.*  The  rule  is  not 

90;  Moodie  *.  Nat.  Bank,  11  Phila.  B.  &  C.  M.  Co.  59  Ib.  96, 101 ;  Mc- 

866;  Fraser  v.  Charleston,  11  8.  C.  Neil  t>.  Tenth  Nat.  Bank,  40  Ib.  831; 

486;  Bank  v.  Campbell.  2  Rich.  Eq.  Leitch  «.  Wells,  48  Ib.  592;  N.  Y.  & 

179;  Continental  Bank  v.  Bank,  7  N.  H.  R.  R.  Co.  v  Schuylcr,  34  Ib. 

Fed  Rep.  369.  30 ;  Johnson  v.  Underbill,  52  Ib.  503; 

1  Culling  ®.  Damerel,  88  N.  Y.  410;  Cushman  v.  Tbayer  Manuf.  Co.  76  Ib. 

Leilch  v.  Wells,  48  Ib.  585.  In  365  ;  Cutting  v.  Damerel,  88  Ib.  410; 

Dovcy's  App.,  97  Pa  St.  153,  the  Commercial  Bank  v.  Kortright,  20 

Pennsylvania  court  cite  the  New  Wend.  91 ;  s.  c.  22  Ib  362;  Smith*. 

York  cases  as  to  lis  pendens  apply-  Crescent  City  Transfer  Co.  30  La. 

ing  to  the  transfer  of  stock,  but  de-  Ann.  1378;  Sibley  v.  Quinsigamond 

cidc  the  case  upon  other  grounds.  Bank,  133  Mass.  515;  Cornick  v. 

*  Johnston  v.  Laflin,  103  U.  8.  800;  Richards,  3  Lea,  1 ;  Cherry  «.  Frost. 

Bank  t>.  Bank,  105  Ib.  217;  McAl-  7  Ib.  1;  Broadway  Bank  v.  McEl- 

lister  ».  Kuhns,  96  Ib.  87;  Webster  v.  rath,  13  N.  J.  Eq.  26 ;  Turnpike  Co. 

Upton,  91  Ib.65;  Bank  v.  Lanier,  11  «.  Ferree,  17  Ib.  118;  Hunterdon  ». 

Wall.  369;  Holbrooke.  New  Jersey  Nassau  Bank,  Ib.  496;  Rogers  v. 

Zinc  Co.  57  N.Y.  616;  Driscoll  v.  W,  Stevens,  8  Ib.  167;  Moore  v.  Bank, 


THE   PLKDGEE   A    HOLDER   FOR   VALUE.  353 

questioned  in  any  jurisdiction  that,  as  between  the  parties 
to  the  contract  of  pledge,  when  made  upon  a  bona  fide 
advance  actually  paid,  the  indorsement  and  delivery  of  cer- 
tificates of  stock  convey  to  the  pledgee  if  not  the  legal 
yet  an  equitable  title  to  the  property  in  the  shares  represented 
thereby.  Under  this  latter  view,  however,  the  pledgee 
receiving  only  an  equitable  title,  although  advancing  money 
upon  the  credit  of  the  certificates,  is  subject,  where  no 
transfer  of  the  stock  has  been  obtained  upon  the  books  of 
the  company,  to  the  claims  of  creditors  levying  upon  the 
stock,  although  they  may  have  received  some  of  the  funds 
advanced  by  the  pledgee,  and  probably  allowed  the  debts 
of  the  pledgor  to  be  incurred  in  ignorance  of  the  ownership 
of  the  stock.  The  limited  rule  should  be  restricted  to  cases 
where  the  statutory  or  charter  enactments  make  transfer 
upon  the  books  of  the  company  essential,  and  are  supple- 
mented by  other  legislation  giving  to  creditors  such  right  of 
levy  upon  shares  of  stock  of  debtors.1 

In    Johnston  v.  Laflin,1  the  court    (Field,  Jus.),   con. 
sidering  the  effects  of  transfer  of  stock  certificates  indorsed  in 

52  Mo.  377;  Carroll  v.  Mullanphy  Gas  Co,  12  Ib.  213;  Pinkerton  «.  R. 
Savings  Bank,  8  Mo.  App.  249;s.c.  R.  Co.  42  N.  H.  424;  Skowhegan 
atf.  74  Mo.  77;  Sergeants.  Franklin  Bank  v.  Cutter,  49  Me.  315;  Agri- 
Ins.  Co.  8  Pick.  90;  Strange  v.  cultural  Bank  v.  Burr,  24  Ib.  256; 
Houston  &  T.  C.  Ry.  Co.  53  Tex.  Lightner's  App.  82  Pa.  St.  301  ; 
162  ;  Railroad  Co.  v.  Thomasson,  40  Pittsburgh  etc.  Ry.  Co.  v.  Clarke, 
Ga.  411;  Dovey's  App.  97  Pa.  St.  29  Ib.146 ;  Bank  of  Commerce's  App. 
153;  Lightner's  App.  82  Pa  St.  301 ;  73  Ib  59;  Beecher  v.  Wells  etc.  Co. 
German  etc.  Bank  ®.  Sendmeyer,  50  1  McCrary  C.  C.  62  ;  Union  Bank  v. 
Ib.  67;  Commonwealth  of  Pennsyl-  Laird,  2  Wheat.  390  ;  Black  v.  Zach- 
vania  v.  Watmough,  6  Whart.  138;  arie,  3  How.  483 ;  People's  Bank  u. 
Duke  v.  Cahawba'  Nav.  Co.  10  Ala.  Gridley,  91  III.  459;  Kellogg  v.  Stock- 
82;  Bank  of  Commerce's  App.  73  well,  75Ib.68;  Laing  v.  Burley,  101 
Pa.  St.  59 ;  Pittsburgh  Ry.  Co.  v.  111.  591 ;  Otis  v.  Gardner,  105  Ib.  436; 
Clarke,  29  Ib.  146  ;  Gilbert  v.  Man-  Lockwood  v.  Mechanics'  Nat.  Bank, 
Chester  Iron  Co.  11  Wend.  628  ;  Bank  9  R.  I.  3C8  ;  Conant  v.  Seneca  Coun- 
of  Utica  v.  Smalley,  2  Cowen,  777.  ty  Bank,  1  Ohio  St.  298 ;  Cheever  ». 
1  Sibley  v.  Quinsigamond  Bank,  Meyer.  52  Vt.  66 ;  Sabin  v.  Bank, 
133  Mass.  515 ;  Fishers.  Essex  Bank,  21  Ib  353. 
5  Gray,  373  ;  Blanchard  v.  Dedham  *  103  U.  S.  800,  803. 
23 


354          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES, 

blank,  as  between  the  parties,  say :  "  The  sale  was  consum- 
mated, so  far  as  Laflin  was  concerned,  when  he  delivered  the 
certificate,  with  the  power  to  transfer  it,  to  the  broker.  The 
hitter  did  not  mention  the  name  of  the  principal  for  whom 
lie  was  acting.  He  declined  to  give  it.  Laflin  had  a  right, 
therefore,  to  treat  him  as  the  principal,  and  if  he  was  compe- 
tent to  make  the  purchase  the  sale  was  valid.  Shares  in  the 
capital  stock'  of  associations,  under  the  national  banking 
law,  are  salable  and  transferable  at  the  will  of  the  owner. 
They  are,  in  .that  respect,  like  other  personal  property. 
The  statute  recognizes  this  transferability,  although  it 
authorizes  every  association  to  prescribe  the  manner  of  their 
transfer.  *  *  As  between  Laflin  and  the  broker, 

the  transaction  was  consummated  when  the  certificate  was 
delivered  to  the  latter,  with  the  blank  power  of  attorney  in- 
dorsed, and  the  money  was  received  from  him.  As  between 
them,  the  title  to  the  shares  then  passed;  whether  that  be 
deemed  a  legal  or  equitable  one  matters  not;  the  right  to 
the  shares  then  vested  in  the  purchaser."  In  the  case  of 
National  Bank  v.  Watsontown  Bank,  the  court,  again  describ- 
ing the  effect  of  a  transfer  of  stock,  as  between  the  parties  to 
a  contract  of  pledge,  say  (Matthews,  Jus.):  "As  between 
Powell  &  Co.  [the  pledgors],  and  Tome,  representing  the 
appellants  [the  pledgees],  the  property  in  the  shares  of 
stock,  undoubtedly,  passed  to  the  latter  without  the  formal- 
ity of  a  transfer  on  the  books  of  the  Watsontown  Bank.  As 
collateral  security  for  the  payment  of  their  notes,  discounted 
and  held  by  the  Cecil  National  bank,  and  with  Hie  power  to 
sell  for  the  purpose  of  payment,  the  title  passed  by  the 
delivery  of  the  certificate,  with  the  accompanying  power  of 
attorney."  * 

§  272.  THE  PLEDGEE'S  DEMAND  FOR  TRANSFER  BY  THE 
CORPORATION. — The  delivery  of  certificates  of  stock  as  col- 
lateral security  with  a  power  of  attorney  to  transfer  them  to 

1 105  U.  S.  217,  220.  «  Citing  Johnston  c.  Lftflin,  103  U. 

S.  800. 


THE  PLEDGEE  A  HOLDER  FOB  VALUE.  355 

another  person,  confers  a  power  coupled  with  an  interest, 
and  gives  to  any  one  claiming  under  an  execution  of  the 
power  a  right  to  demand  of  the  company  new  certificates  of 
stock.  The  power  thus  given  can  only  be  revoked  by  pay- 
ment of  the  debt,  for  which  the  stock  has  been  transferred 
as  collateral  security.1  The  pledgee  of  a  certificate  of  stock 
in  Massachusetts,  while  restricted  by  statute  in  his  rights 
under  a  contract  of  pledge,  so  that  he  can  not  sell,  lend,  or 
pledge  the  stock  certificates  held  by  him  as  collateral  secur- 
ity, is  still  entitled  to  require  a  new  certificate  to  be  issued 
to  himself  or  a  third  person.  The  title  of  the  stock  thus 
obtained  is  held  subject  to  the  agreement  of  pledge,  but  is 
permitted  in  order  to  render  the  collateral  securities  more 
available  to  the  pledgee.*  Upon  the  refusal  of  a  corporation 
to  make  such  transfer,  upon  demand  and  presentation  of  a 
certificate,  with  irrevocable  power  of  attorney  to  transfer 
indorsed  thereon,  the  holder  for  value  may  bring  an  action  at 
law  against  the  corporation  for  damages,  recovering  the  actual 
value  of  the  stock  at  the  time  of  the  refusal  to  transfer,  or 
resort  may  be  had  to  equity  to  require  a  transfer  to  be  made, 
or  to  afford  other  suitable  relief.3  A  petition  for  a  writ  of 
mandamus  to  compel  the  corporation  to  make  the  transfer 
is,  it  seems,  appropriate.4 


1  Dickinson  v.  Cent.  Nat.  Bank,  meyer,  50  Pa.  St.  67;  Hill  v.  Pine 
129  Mass.  279;  Rich  v.  Noble,  39  River  Bank,  45  N.  H.  300;  Railroad 
Md.  314  ;  Hunt  v.  Ronsmanier,  8  Co.  0.  Sewall,  35  Md.  239  ;  Fraser  v. 
Wheat.  174  ;  Gill  v.  Continental  Gas  Charleston,  11  S.  C.  486  ;  Bond  v. 
Co.  L.  R  7  Ex.  382;  Simm  v.  Anglo-  Mount  Hope  Co.  99  Mass.  506  ;  Bar- 
American  Tel.  Co.,  L.  R.  5  Q.  B.  D.  gent  v.  Franklin  Ins.  Co.  8  Pick.  100; 
188,  215.  Gray  v.  Portland  Bank,  3  Mass.  364; 

»  Fay  v.  Gray,  124  Mass.  500.  Kortright  v.  Buffalo  Bank.  20  Wend. 

3  Case  v.   Bank,    100  U.   S.  446;  91 ;  Bank  of  Attica  v.  Bank,  20  N.Y. 

Johnston  ».  Laflin,  103  Ib.  800;  Me-  505;  Gill  v.  Continental  Gas  Co.  L. 

Allister  v.  Kuhn,  96  Ib.  87 ;  National  R.  7  Ex.  332. 

Bank  v.  Bank,  10  Bush,  367 ;  Bank          4  Campbell  v.  Morgan,  4  Bradw. 

«.    McNeil,    Ib.    56;    Dayton  Nat.  100,  105 ;  Shropshire  Unions  Ry.  Co. 

Bank  v.  Bank,  37  Ohio  St.  208,  215;  v.  Queen,  L.  R.  7  H.  L.  420. 
German  Union  Bldg  Assn.  «.  Send- 


356        QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

§  273.  TRANSFER  OF  STOCK  ON  THE  BOOKS  OF  THE 
COUPORATION. — In  cases  where  a  pledgee  for  value  of  stock 
certificates  has  neglected  to  obtain,  in  compliance  with  stat- 
utory or  charter  provisions,  a  transfer  of  the  shares  upon 
the  books  of  the  company  and  the  issue  of  new  certificates, 
he  receives  an  equitable  title  only  and  is  subject  to  the 
equities  of  third  parties.1  Under  such  statutory  or  charter 
enactments,  no  person  can  acquire  a  legal  title  to  the  shares 
of  stock,  except  upon  a  regular  transfer  thereof  into  his 
name  upon  the  books  of  the  company,  and  the  issue  of  new 
certificates.  The-  equities  to  which  he  is  subject,  while 
holding  what  is  regarded  as  an  equitable  title  simply,  include 
any  liens  of  the  corporation  itself,  of  which  he  is  presump- 
tively chargeable  with  notice.*  All  that  is  necessary  where 
the  transfer  is  required  by  law  to  be  made  upon  the  books 
of  a  corporation,  is  that  the  fact  itself  should  be  appropri- 
ate^ recorded  in  some  one  or  other  of  such  books.  An 
entry  in  a  stock  ledger,  showing  a  debit  and  credit  charge 


1  Fisher  v.  Essex  Bank,  5  Gray,  dorsed  with  a  power  of  attorney  to 
373 ;  Rock  v.  Nicholls,  3  Allen,  343;  the  purchaser  to  make  the  necessary 
Union  Bank  t.  Laird,  2  Wheat.  890 ;  transfer  on  the  books  of  the  corpora- 
Oxford  Bank  v.  Bunnel,  6  Conn.  558;  tion,  transfers  to  the  purchaser  the 
Dalton  T.  Connecticut  Bank,  13  Ib.  equitable  interest  and  legal  right  of 
493;  Shipman  v.  Etna  Ins.  Co.  29  the  vendor  in  the  property  evidenced 
Ib.  245 ;  Weston  v.  Bear  River  etc.  by  the  certificate  assigned.  It  corn- 
Co.  5  Cal.  186 ;  Straut  v.  Natoma  Co.  pletes  the  transaction  between  the 
9  Ib.  78 ;  Naglee  v.  Pacific  Wharf  vendor  and  the  purchaser.  But  as 
Co.,  20  Ib.  529 ;  Winter  v.  Belmonl  regards  the  corporation  and  those 
Mining  Co.  53  Ib.  431 ;  People's  who  have  a  right  to  look  to  its 
Bank  v.  Gridley,  91  111.  467 ;  Fiske  records  for  the  owners  of  the  stock, 
«.  Carr,  20Me.301 ;  Skowhegan  Bank  the  transaction  is  incomplete.  The 
«.  Cutler,  49  Ib.  315 ;  Pinkerton  v.  purchaser  does  not  become  vested 
Railroad  Co.  42  N.  H.  424  ;  Bank  of  with  the  absolute  title  to  the  stock- 
Commerce's  App.  73  Pa.  St.  59;  does  not  become  a  stockholder  in 
Robert's  App.  85  Ib.  84 ;  Cheevcr  v.  the  corporation—  until  the  purchased 
Meyer,  52  Vt.  66  ;  Sabin  v.  Bank,  stock  is  transferred  to  him  on  the 
21  Ib.  353  ;  in  re  Murphy,  51  Wis.  books  of  the  corporation." 
519.  In  Cheevcr  v.  Meyer,  supra,  *  Union  Bank  v.  Laird,  2  Wheat, 
the  court  say:  "A  sale  of  the  stock,  390;  Bank  of  Commerce's  App.  73 
with  a  transfer  of  the  certificate  in-  Pa.  St.  59. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.  357 

between  the  two  parties,  pledger  and  pledgee,  is  a  sufficient 
compliance  with  such  statute,  and  vests  the  transferee  with 
a  complete  and  absolute  title,  and,  so  far  as  the  corporation 
is  concerned,  the  act  is  irrevocable.1  Or  a  notice  at  a 
meeting  of  the  board  of  directors  of  the  company  is  suffi- 
cient.2 Statutory  provisions,  requiring  transfer  on  the 
books  of  the  company,  are  intended  chiefly  for  the  benefit 
of  the  company.8  The  single  consideration  that  a  creditor 
of  a  shareholder  in  a  national  bank  has  no  right  of  access  to 
the. books  of  the  bank,  and  no  means  of  obtaining  knowl- 
edge of  transfers  upon  them,  shows  that  such  record  is  not 
intended  for  his  benefit.4  Possession  of  the  certificate,  with 
authority  to  transfer,  is  prima  facie  sufficient  to  require  the 
corporation  issuing  the  same  to  extend  to  the  holder  the 
privileges  and  benefits  to  which  the  person  in  whose  name 
such  certificate  was  originally  issued,  was  entitled.5  Appli- 
cation for  transfer,  however,  without  production  of  the  cer- 
tificate, is  per  se  notice  to  a  company,  through  its  officers, 
that  the  legal  title  to  the  shares  of  stock  represented  there- 
by may  be  in  a  third  person,  a  holder  for  value,  without 
notice.6 

Transfer  of  the  shares  into  the  name  of  the  transferee  is 
necessary,  in  England,  to  pass  the  legal  title,  and  perhaps 
such  transfer  should  be  registered,  which  is  generally  done.1 

1  National   Bank  v.   Watsontown  4  Sibloy  ».   Quinsigamond  Bank, 

Bank   105  U.  S.  217.  133  Mass.  515. 

*  Ex  parte  Agra  Bank,  L.  R.  3  Cli.  *  Strange  v.  Houston  &  T.  Ry.  Co. 

555.  53  Tex.  162. 

1  Strange  «.  Houston  etc.  Ry.  Co.  '  Strange  v.    Houston  &  T.    Ry. 

53  Tex.  1.J2;  Serge-ant  v.  Essex  Ma-  Co  53  Tex.  162;  New  York  &  N.H. 

Hue  Ry.  9  Pick.  201;  Bank  v.  Kort-  R.  R.  Co.  e.  Schuyk-r,  34  N.  Y.  81; 

right,  23  Wend.  362;  Bank  of  Utica  Brisbane  v.  Railroad  Co.  25  Hun, 

T.  Smalley,  2  Cow.  770;  Ins.  Co.  v.  438;  Bayard  v.  Bank,  52  Pa.  St.  235; 

Goodfellow.  9  Mo.  150;    Chouteau  Holbrooke.  New  Jersey  Zinc  Works, 

Springs  Co.  «.   Harris,   20  Ib.  382;  57  N.  Y.  616. 

Kellogg    v.   Stockwcll,    75    111.  68;  *  Shropshire    Unions  Ry.    Co.  v. 

Broadway  Bank  v.  McElrath,  13  N.  Queen,  L.  R.  7  H.  L.  496. 
J.  Eq.  26;  Continental  Bank  «.  Eliot 
Bank,  7  Fed.Rep.  369. 


358          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

The  legal  title  to  shares  of  stock  can  only  be  obtained  by 
an  instrument  executed  in  the  manner  required  by  the 
articles  of  association.1  A  mere  delivery  of  certificates  of 
stock  without  the  legal  title  thereto,  is  not  sufficient  to  pro- 
tect the  interests  of  the  pledgee  as  against  third  parties.1 
Where,  however,  the  legal  title  to  shares  of  stock  is  vested 
in  a  mortgagee  or  pledgee,  an  equity  of  redemption  merely 
remaining  in  the  mortgagor  or  pledgor,  the  right  to  a  transfer 
of  the  stock  as  against  the  mortgagor  or  pledgor,  and  to 
compel  the  company  to  register  such  transfer,  is  enforced  by 
courts  of  equity.* 

§  274.  LIMITATIONS  OF  COMPANY'S  RIGHT  TO  CONTROL 
TRANSFER. — The  directors  of  a  company,  however,  have  no 
discretionary  power  independently  of  authority  given  by  the 
charter  or  articles  of  association,  to  refuse  the  registry  of  a 
transfer  which  has  been  propeily  made  and  in  good  faith.4 
And  the  terms  of  transfer  prescribed  under  statutory  or 
charter  powers  are  required  to  be  reasonable.  As  said  by 
the  United  States  Supreme  Court,  (Field,  Jus.)  in  a  recent 
case:5  The  power  of  corporations  "in  that  respect,  how- 
ever, can  only  go  to  the  extent  of  prescribing  conditions 
essential  to  the  protection  of  the  association  against  fraud- 
ulent transfers,  or  such  as  may  be  designed  to  evade  the  just 
responsibility  of  the  stockholder.  It  is  to  be  exercised 
reasonably.  Under  the  pretence  of  prescribing  the  manner 

1  Simm  v.  Anglo-Am.  Tel.  Co.  L.  they  are  partnerships   from  which 

R.  5  Q.  B.  D.  216.  members  can  retire  at  once,  and  f  reo 

*  Shropshire    Unions    Ry.    Co.  v.  themselves    from    responsibility  at 
Queen,  supra.  any  time  they  please,  by  going  into 

*  Gill  v.  Continental  Gas  Co.  L.  R.  the  market  and    disposing  of  and 
7  Ex.  332.  transferring  their  shares  without  the 

4  Weston's  case,  L.  R.  4  Ch.  20.  consent  of  the  directors  or  share- 
Sir  W.  Page  Wood  (L.  J.)  in  deliver-  holders,  or  anybody,  provided  it  is  n 
ing  judgment,  said  (p.  27):  "Many  bona  fide  transaction,  and  out  aud 
persons  enter  these  companies  for  out." 

the  very  reason  that  they  are  not  '  Johnston  o.  Laflin,  103  U.  S.  800, 

like  ordinary  partnerships,  but  that  804. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.       359 

of  the  transfer,  the  association  cannot  clog  the  transfer  with 
useless  restrictions,  or  make  it  dependent  upon  the  consent 
of  the  directors  or  other  stockholders.  It  is  not  necessary, 
however,  to  consider  what  restrictions  would  be  within  its 
power,  for  it  had  imposed  none.  The  entry  of  the  trans- 
action on  the  books  of  the  bank,  where  stock  is  sold,  is  re- 
quired, not  for  the  translation  of  the  title,  but  for  the  pro- 
tection of  the  parties  and  others  dealing  with  the  bank,  and 
to  enable  it  to  know  who  are  its  stockholders,  entitled  to 
vote  at  their  meetings  and  receive  dividends  when  declared. 
It  is  necessary  to  protect  the  seller  against  subsequent 
liability  as  a  stockholder,  and  perhaps  also  to  protect  the 
purchaser  against  proceedings  of  the  seller's  creditors.  Pur- 
chasers and  creditors,  in  the  absence  of  other  knowledge,  are 
only  bound  to  look  to  the  books  of  registry  of  the  bank." 

§  275.  TRANSFER,  AS  CONTROLLED  BY  TERMS  OF  CERTI- 
FICATE.— The  terms  in  which  certificates  of  stock  are  issued 
by  a  corporation  is  a  material  consideration  upon  the  ques- 
tion of  transfer.  A  company  is  bound  by  the  representa- 
tions it  makes,  generally  under  seal,  on  the  face  of  its  cer- 
tificates, and  third  persons  advancing  money  upon  the  credit 
of  such  statements,  are  entitled  to  rely  thereon.  Where 
they  set  forth  the  manner  of  transfer  of  such  stock,  they  con- 
stitute the  regulations  thereof.1  Nor  is  the  holder  for  value, 
without  notice,  of  such  certificate  required  to  examine  and 
ascertain  at  his  peril  whether  previous  transfers  thereof  were 
valid.2  Nor,  in  the  absence  of  any  requirement  upon  the 
certificate  itself,  is  the  holder  thereof  for  value,  without 

1  Bank  of  Holly  Springs  ».  Pinson,  discussed  in  Fisher  v.  Essex  Bank,  5 

58  Miss.  421,  437;  Bank  v.  Lanier,  Gray.  373,  by  Gray,  C.  J. ;  in  Cheever 

11  Wall.  369;  Van  Sands  «.  Middle-  v.    Meyer,    52  Vt.  66;  Williams  v. 

sex  Bank,  26  Conn.  144;  Townsend  Mechanics'  Bank,  5  Blatchf.  59,  and 

t>.  Mclver,  2  Rich.  43;  Williams  v.  a  strict  construction  given  thereto. 
Mechanics' Bank,  5  Blatchf.  50;  Peo-          5  Lowry    v.    Bank,    Taney,    310; 

pie's  Bank  v.  Gridley,    91   111.  457.  Salisbury    Mills  v.  Townsend,   109 

As  to  the  clause  ''  transferable  only  Mass.  115. 
ou  the  books  of  the  company,"  it  is 


3GO          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

notice,  required  to  give  notice  to  the  company  of  its  indorse- 
ment and  delivery,  where  the  certificate  declares  that 
transfer  will  be  made  only  upon  the  surrender  thereof.1 
The  title  of  a  holder  for  value,  without  notice,  of  a  certifi- 
cate of  stock  making  such  representations,  is  not  affected  by 
a  by-law  of  the  corporation  providing  for  the  assignment  of 
such  shares  by  a  separate  instrument.  The  company  is 
estopped  as  against  an  innocent  holder  for  value  of  a  certifi- 
cate, indorsed  with  irrevocable  authority  to  transfer,  to  deny 
that  it  has  the  stock  when  transfer  thereof  is  demanded.  It 
is  no  defense  for  the  company  that  other  certificates  have 
been  issued  upon  an  assignment  executed  separately,  the 
certificates  not  having  been  produced  and  surrendered.8 

The  rule  was  enforced  where  a  pledge  of  certificates  of 
stock,  transferable  "  only  upon  the  surrender  of  this  certifi- 
cate," was  made  to  a  bank  to  secure  deposits  made  with 
another  bank,  by  a  separate,  independent  instrument, 
authorising  the  sale  thereof  upon  default,  the  certificates 
not  being  delivered.  The  stock  certificates  were  subse- 
quently negotiated  by  the  pledger  to  a  bona  fide  holder  for 
value  without  notice,  the  certificates  being  indorsed  and 
delivered.  Notice  was  given  to  the  bank,  but  prior  thereto, 
all  the  shares  had  been  sold  under  the  power  of  attorney. 
Transfer  having  been  refused,  the  bona  fide  holder  for  value, 
without  notice,  advancing  his  money  upon  the  faith  of  the 
representations  contained  in  such  certificates,  was  allowed 
to  recover  his  damages  from  the  bank.* 


1  Bank  v.  Lanier,  11  Wall.  869.  without  knowledge  of  any  adverse 

*  Strange  v.  Houston  etc.  Ry.  Co.  claim,  in  full  faith  that   the  bank 
53  Tex.  162;  Holbrook  v.  Zinc  Co.  would  observe  its  engagements,  and 
57    N.  Y.    616;    McNeil  v.   Tenth  pursued  in  all  respects  the  directions 
Nat.  Bank,  46  Ib.  331 ;  in  re  Bahia  given  in  the  certificates.    They  were 
&  8.  F.  Ry.  Co.  L.  R.  8  Q.  B.  584.  not  told  to  give  notice  to  the  bank 

*  First  National  Bank  n.  Lanier,  11  of  their  purchase,  nor  was  there  any 
Wall.  369.    The  court  (Davis,  Jus.)  necessity  for  notice,  because,  by  the 
say:     "la    this    case    Lanier    and  rules  of  the  bank,  Culver  could  not 
Handy    made    their     purchase    of  transfer  the  stock  in  the  absence  of 
Culver.     They  bought  for    value,  the  certificates,  and  these  they  had 


THE  PLEDGEE  A  HOLDER  FOB  VALUE.  361 

§  276.  THE  PLEDGE  OF  CERTIFICATES  OF  STOCK  B? 
DELIVERY. — The  use  of  certificates  of  stock  as  collateral 
security  where  made  by  a  mere  delivery  of  the  certificates 
without  any  power  of  transfer  propeily  signed,  vests  in  the 
pledgee  an  equitable  title  only.  The  pledgee  is  unable  to 
enforce  his  security,  upon  default,  by  the  ordinary  processes 
of  sale  ;  but  he  may  obtain  relief  in  equity,  where  the  perfor- 
mance of  the  necessary  acts  to  render  the  security  available 
may  be  decreed.1  Relief  was  given  in  equity  where  certifi- 
cates of  stock  had  been  pledged,  and  it  was  not  discovered 
until  after  maturity  of  the  principal  note  and  default,  that 
the  power  of  attorney  to  transfer  such  certificates  had  not 
been  signed  by  the  pledger.'  The  pledgee  was  allowed, 
either  to  have  the  necessary  indorsement  made  or  to  sell  the 
certificates  and  apply  the  proceeds  to  the  discharge  of  the 
note.9  A  mere  executory  contract  for  the  transfer  of  stock 
as  collateral  security  is  not  enforced  in  equity  to  the 
prejudice  of  third  persons  who  have  acquit ed  lights  there- 
in bona  fide.3  Nor  to  the  injury  of  a  pledgee  of  the  same 
shares  of  stock,  advancing  money  in  good  faith,  without 
notice,  of  the  previous  pledge,  who  has  obtained  an  actual 
transfer  of  the  bhares  to  his  own  name  on  the  books  of  the 
company.4  Under  the  Louisiana  code  and  judicial  decisions 

in  their  possession.    It  is  therefore  R.  R.  Co,  30  Conn  270;  N.  Y.  &  N. 

clear,  iu  making  their  purchase  of  H.  R.R.  Co.  «.  Schuyler,  "4  N.  Y.  30. 

Culver,  that  they  had  a  right  to  rely  '  Nesbit  v.  Maoon   Bank  etc.  Co. 

on   the   certificates    as   securing  to  12 Fed.  Rep  686;  Johnstons. Dexter, 

them  the  st;  ck  which  they  repre-  2    MacAv.   530;   Allen  v.  Dykers,  3 

sented.    And  it  is  equally  clear  that  Hill,  593;  s.  c.  7  Ib.  497;  Wilson  v. 

the  bank  in  allowing  this  stock  to  Little,  2  N.  Y.  443;  Newton  v.  Fay, 

be  transferred  to  other  parties,  while  10  Allen,  505;  ex   parte  Boulton,  1 

the  certificates  were  outstanding  in  DeG.  &  J.  163. 

the  hands  of  bona  fide  holders,  was  3  Johnson  v.  Dexter,  2  MacAr.  530. 

guilty  of  a  breach  of  corporate  duty,  8  State  Fire  Ins.  Co.  v.  Olmstead, 

and  as  its  conduct  operated  to  the  33  Conn.  480. 

injury  of  Lariier  and  Handy,  an  ac-  4  Platt  v.  Hawkins,  43  Conn.  139; 

tion  will  lie  in  their  behalf  to  obtain  Platt  v.  Birmingham  Axle  Co.  41  Ib. 

satisfaction  for  the  injury."     Citing  255. 
Bridgeport  Eank  v.  N.  Y.  &  N.  H. 


362          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

shares  of  stock  may  be  pledged  by  contract  and  delivery  of 
the  certificates.  Such  certificates  are  taken  by  the  pledgee 
subject  to  all  the  liens  and  privileges  which  the  law  places 
upon  them.1  Possession  of  the  stock  certificates,  however, 
may  be  held  by  one  occupying  ad  hoc  the  position  of  a 
trustee.  The  debtor  himself  may  in  some  cases  be  considered 
as  such  trustee,  and  be  given  possession,  pi ovided  his  tenure 
is  precarious  and  clearly  for  account  of  the  creditoj.9 

§  277.  TTTE  PLEDGEE  BY  DELIVERY  MERELY,  SUBJECT 
TO  EQUITIES. — A  pledgee  of  certificates  of  stock,  by  mere 
delivery  or  an  equitable  mortgage  thereof,  is  subject  to  the 
equities  of  third  persons  and  cestuis  que  trust,  although  he 
may  have  a  written  agreement  from  the  pledgor  to  execute 
a  legal  transfer  of  the  shares.  The  rule  thus  limiting  the 
rights  of  a  pledgee  by  deliver}'  was  enforced  in  a  case  where 
the  act  of  pledge  of  the  stock  was  a  fraudulent  misap- 
propriation The  pledgee's  only  way,  in  the  opinion  of  tho 
English  House  of  Lords,  of  making  himself  safe  was  by 
finding  out  if  the  person  whose  name  was  on  the  register 
was  a  trustee,  and  if  so,  by  getting  from  the  person  for 
whom  he  was  a  trustee  a  declaration  that  his  interest  had 
ceased,  or  else  by  acquiring  the  legal  title,  and  so  placing 
himself  in  a  better  position  than  those  who  were  trying  to 
rest  upon  an  equitable  title.1  Although  the  trustee  held  the 
legal  title  and  the  right  to  transfer  the  stock  and  to  give  a 
valid  receipt  for  the  purchase-money  to  any  innocent  person 

1  Smith  v.  Shnighter-house,  80  La.  Blouin  v.  ITart,  30  Il>.  714  ;  Smith  v. 

Ann.  1378;  N  O.  Banking  Assn.  v.  Slaughter-house,  Ib  1378;  Hanking 

Wiltz.  10  Fed.  Hep.  330;  Blouin  v.  Assn.  «.  Wilts.,  10  Fid.  Hep  3;X); 

Hurt,  30  La.  Ann.  714;  Factor's  Ins.  La.  Rev.  C.  Code,  8158.  And  the 

Co.  v.  Drydock.  31  Ib.  145  ;  Succ.  same  rule  prevails  und<  r  the  Roman 

Rosseau,  23  La  Ann.  3 ;  IIo.-s  v.  and  French  law.  Pothicr.  Paml. 

Williams,  24  Ib.  568.  v.  vii,  p.  860 ;  Pothier,  Nant.  8; 

*  Conger  v.  City  of  New  Orleans,  Troplong.  Nant.  Nos.  97-99;  809  312. 
32  La.  Ann  1250;  James  T.  Pike,  'Shropshire  Unions  Ry.  Co  v. 

23  Ib.  478;  Lntlande  v.  Ingram,  19  Queen,  L.  U  7  II.  L.  496,  513 

Ib.  364  ;  Succ.  D'.Meza,  26  Ib.  35  ;  (Hatherly,  Lord). 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.        363 

without  knowledge  of  the  trust,  yet  where  the  title  acquired 
was  only  equitable,  it  was  necessarily  imperfect,  and  would 
not  bind  the  real  beneficial  owner.  The  pledgee  should 
have  taken  the  pledger  at  his  word,  for  all  he  had  to  do  was 
by  the  most  simple  means,  to  take  the  pledger,  or  a  written 
authority  from  him,  to  the  company,  and  demand  a  transfer 
of  the  shares.  If  the  company  (the  cestui  que  trust  in  the 
case)  had  made  the  transfer,  the  pledgee  would  have  had  an 
unimpeachable  legal  title  to  the  shares,  as  a  pre-existing 
equitable  title  may  be  defeated  by  a  superveninglegal  title  ob- 
tained by  transfer;  and  such  cestuis  que  trust  may  be  estopped 
by  conduct,  representations  or  mis-statements.  J  <>  have  this 
result,  that  which  is  relied  upon  for  such  a  purpose  must  be 
shown  and  proved  l»3r  those  upon  whom  the  burden  to  show 
and  prove  it  lies,  and  it  must  amount  to  something  tangible 
and  distinct,  something  which  can  have  the  grave  and  strong 
effect  to  accomplish  the  purpose  for  which  it  is  said  to  have 
been  produced.1 

§278.  PLEDGEES  OF  STOCK  NOT  AFFECTED  BY  INSOL- 
VENCY CF  PLEDGOR. — The  subsequent  insolvency  or  bank- 
ruptcy of  the  pledger,  where  the  certificates  of  shares  of  stock 
pledged  as  collateral  security  have  passed  with  full  title  to 
the  pledgee,  and  with  transier  on  the  books  of  the  company 
where  required  by  stat  111017  enactment  or  charter,  does  not 
affect  the  rights  of  the  pledgee.  Bankruptcy  or  insolvency 
laws  take  away  none  of  the  rights  of  the  creditor  to  collateral 
securities  held  by  him,  under  proper  indorsement.8  The 
receiver  of  an  insolvent  corporation  occupies  no  better 
position  in  this  respect,  and  has  no  greater  right  to  a  sur- 
render of  the  collaterals  as  against  a  pledgee  of  stock  for 
value  advanced  in  good  faith,  without  notice,  than  the  cor- 

1  Shropshire  Unions  Ry.  Co.  v.  95  Ib.  764;  Bank  of  Louisville  v, 

Queen,  L.  R.  7  H.  L.  496,  506  (Earl  State  Bank.  10  Bush,  367;  Dayton 

Cairns,  Lord  Chancellor).  Nat.  Bank  v.  Nat.  Bank,  37  Ohio, 

8  Jerome  v.  McCarter,  94  TJ.  8.  734,  St.  208,  215 ;  Dickinson  v.  Central 

739  ;  Yeatman  v.  Savings  Institution,  Nat.  Bank,  129  Mass.  279. 


364          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

poration  itself  had.1  In  cases  where,  under  statutory  enact- 
ments, transfer  of  shares  of  stock  upon  the  books  of  the 
company  is  required  befoie  a  pledgee  thereof  can  obtain  the 
legal  title,  and  there  is  a  failure  to  comply  therewith,  the 
equitable  title  of  the  pledgee  is  defeated  by  an  assignment 
of  all  his  property  by  the  pledger.1  An  equitable  mortgage 
of  shares  by  deposit,  where  in  order  to  secure  the  legal  title 
under  the  charter,  registry  on  the  books  of  the  company  is 
required,  and  the  pledgee  has  failed  to  make  any  transfer 
thereon,  is  not  supported,  as  against  an  assignee  in  bank- 
ruptcy of  the  pledger.*  A  pledge  of  stock  certificates  is  not 
supported  as  against  an  assignment  under  insolvency  laws, 
where  the  delivery  of  such  certificates  as  collateral  security 
was  merely  nominal,  until  in  view  of  impending  insolvency 
transfers  of  the  legal  title  were  executed  and  registered  on 
the  books  of  the  company.4  Shares  of  stock  were  deposited 
as  collateral  security  with  a  bank  for  value,  and  were  trans- 
ferred by  the  pledgee  to  the  names  of  its  officers.  Subse- 
quently being  indebted  to  a  third  person,  the  pledgor  agreed 
in  writing  to  hold  his  remaining  interest  in  the  shares  as 
trustee  for  his  benefit,  and  then  became  bankrupt.  The 
second  pledge  was  supported  as  against  his  assignee,  subject 
to  the  claims  of  the  bank.8  Shares  of  stock  standing  on  the 
books  of  a  corporation  in  the  name  of  a  bare  trustee,  the 
certificate  properly  indorsed  being  in  the  possession  of  the 
true  owner,  do  not  pass  in  Massachusetts  upon  an  assign- 
ment for  the  benefit  of  creditors  of  the  trustee,  as  they  are 
not  "property"  of  the  debtor  under  such  insolvent  laws.' 


1  Cutting  v.  Damerel,  88  N.Y.  410.  •  Ex  parte  Barry.  L.  R.  17  Eq.  113. 

1  Shipmnn    «.    Etna    Ins.    Co.  29  •  Holmes  v.  Winchester,  183  Mass. 

Conn.  245;   City  Fire    Ins.    Co.  «.  140;  Sibley  v.  Quiusigamond  Bank, 

Olmstcnd,   33  Ib.  480;     Button  v.  Ib.  515;  Cbace  ».  Chapin.  130  Ib. 

Connecticut  Bank,  13  Ib.493.  128  ;  Hunnewell  v.  Lane,  1  Met.  163. 

8  Ex  parte  Boulton,  1  DeG.  &  J.  But  see  Button  v.  Connecticut  Bank. 

163.  18  Conn.  493;  Sbipman  v.  Etna  Ins. 

4  Nesbit  v.  Macomb  Banking  Assn.  Co.  29  Ib.  245. 
12  Fed.  Rep.  686. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.  3G5 

§  279.  PLEDGES  OF  STOCK  FOR  ANTECEDENT  DEBT  AND 
FUTURE  ADVANCES. — The  rule  prevailing  in  certain  states 
that  the  holder  of  negotiable  securities,  receiving  the  same 
as  collateral  security  for  a  pre-existing  debt,  without  further 
consideration,  is  not  a  holder  for  value,  in  the  usual  course 
of  business,  is  applied  in  cases  where  certificates  of  stock 
have  been  used  as  collateral  security.  The  rule  is  enforced 
although  the  certificate  itself  has  been  delivered,  properly 
indorsed,  with  full  power  to  transfer  the  same  on  the  books 
of  the  company.1  Where,  however,  new  and  valuable  con- 
sideration is  given  for  such  transfer  as  collateral  security, 
the  claims  of  the  pledgee  are  supported  to  the  extent  of  such 
new  consideration,  as  being  a  present  advance.*  Upon  a 
pledge  of  certificates  of  stock  for  an  antecedent  debt,  new 
notes  being  given  as  evidence  thereof,  the  pledgee  is  regarded 
as  a  holder  for  value  within  the  rule,  as  the  transaction 
amounts  to  a  valid  extension  of  the  time  for  payment.3 
Pledges  of  stock  are  also  sustained  when  made  to  secure 
future  advances  or  proposed  liabilities.4 

§  280.  THE  PLEDGEE  OF  STOCK  CERTIFICATES  ENTITLED 
TO  DIVIDENDS. — The  holder  of  certificates  of  stock  as  col- 
lateral security,  receiving  the  same  indorsed  with  a  power 
of  attorney  in  blank,  is  entitled  upon  notice  to  the  company, 
to  collect  the  dividends  accruing  on  such  stock  while  such 
certificate  remains  in  his  possession.  Nor  is  transfer  upon 
the  books  of  the  company  material  as  to  this  right.  Such 
collections  are  applied  on  the  debt  at  maturity.  The  title 

1  Moodie  v.  Seventh  Nat.  Bank,  11  was  supported  in  ex  parte  Barry,  L. 

Phila.  366;  Barton  v.  Peterson,  12  Ib.  R.  17  Eq.  113. 

397  ;  Root  v.  French,  13  Wend.  570 ;  *  Weaver    v.    Barden,    Cherry  v. 

Weaver  v.  Barden,   49  N.  Y.  286 ;  Frost,   and  Moodie  v.    Nat.   Bank, 

Gould  v.  Farmers'  Loan  and  Trust  supra. 

Co.  23  Hun,   322  ;    Roxborough  v.  *  Dayton  Nat.  Bank  v.  Merchants' 

Messick,  6  Ohio  St.  448 ;  Cleveland  Nat.  Bank,  37  Ohio  St.  208,  217. 

«.  State  Bank,  16  Ib.  236 ;  Cherry  v.  *  National  Bank  v.  Hall,  18  Hun, 

Frost,  7  Lea,  1.    A  pledge  of  stock  176 ;  Eichelberger  v.  Murdock,    10 

certificates  for  an  antecedent  debt  Md.  373. 


3HG          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

to  such  dividends  is  in  the  pledgee,  the  increase  of  pledged 
property  going  with  the  debt.1  The  pledgee,  indeed,  is  an 
owner;  his  special  ownership  imposes  upon  him  the  duties 
of  a  trustee.  As  such,  he  is  bound  to  collect  dividends,  and 
may  sue  in  his  own  name.  It  is  not  necessary  that  he  should 
become  absolute  owner  by  foreclosure  before  suing  for  divi- 
dends on  the  stock.*  And  where  stock  is  purchased  by  a 
broker  for  a  customer,  and  held  by  him  with  his  margins  as 
security  for  the  fulfilment  by  the  customer  of  his  engage- 
ments, interest  or  dividends  accruing  thereon  will  be  credited 
to  the  latter.8  Stock  owned  by  C  was  pledged  by  B  to  A, 
but  A  had  no  notice  of  the  ownership  until  after  default  in 
payment  of  the  loan,  when  C  requested  him  to  delay  the 
sale.  C,  having  collected  dividends  on  the  stock  during  the 
delay,  and  the  title  to  them  being  in  the  pledgee,  C,  as 
trustee  for  A,  was  required  to  pay  them  over.4  Where  divi- 
dends are  collected  by  a  pledger,  an  action  for  money  had 
and  received  for  his  use  may  be  brought  by  the  pledgee, 
where  the  latter  has  received  the  certificates  of  stock  so  as 
to  vest  the  legal  title  in  him.5  But  a  mere  delivery 
of  certificates,  without  indorsement,  or  of  a  special  property 
therein  only,  the  pledger  remaining  owner  at  the  time 
of  declaring  the  dividends,  will  not  entitle  the  pledgee 
to  collect  them.6 


1  Gaty  v.  Holliday.  8Mo.  App.  118;  certificates.     Chamberlain*  Green- 
Merchants'  Nat.  Bank  v.  Richards,  leaf,  4  Abb.  N.  Cas.  178;  but  they 
6  Ib.  454 ;  aff.  70  Mo.  77 ;  Herman  must  be  accounted  for.     Ib. 
t>.  Maxwell,  47  N.Y.  Super.  Ct.  347;  'Merchants'  Nat.  Bank  v.  Rich- 
Hill  v.  Newichawanick  Co.  48  How.  ards.  6  Mo.  App.  454;  aff.  70  Mo.  77. 
Pr.  429  ;  Kellogg  «.  Stockwcll.  75  111.  •  Markham  v    Jaudon,  41  N.   Y. 
71  :  March  v.  Railroad  Co.  43  N.H.  235;    Chamberlain  v.    Grecnlcaf,   4 
520  ;  Conant  t>.  Seneca  County  Bank,  Abb.  N.  C.  178. 
1  Ohio  8t.  298 ;  Hasbrouck  t>.  Van-  «  Herman   v.  Maxwell,  47  N.  Y. 
dervoort,  4  Sanclf .  74 ;  Buttenvorth  Super.  Ct.  347. 
«.  Kennedy,  5  Bosw.  143;  Isaac  v.  *  Hill  v.  Newickhawanick  Co,  48 
Clark.  2  Bulst.  306.     The  ri^ht  to  How.  Pr.  429;   Gaty  v.  Holliday,  8 
collect  dividends  is  recognized  as  to  Mo.  App.  118. 
sub-pledgees,  holding  the  title  to  the  •  Dow    v.  Gould  etc.  Co ,  31  Cal. 
stock  by  proper  indorsement  of  the  649. 


THE  PLEDGEE  A  HOLDER  FOR  VALUE.  807 

§281.  THE  PLEDGEE  OF  STOCK  ENTITLED  TO  PROTECT 
PROPERTY  OF  COMPANY. — Equity  will  aid  the  pledgee  of 
stock  certificates,  holding  the  same  for  value,  with  title,  in 
cases  where  the  pledger  is  wasting  the  property  and  assets 
of  the  company,  and  destroying  the  value  of  the  stock.  The 
owner  of  the  controlling  interest  in  a  company,  having 
secured  loans  upon  pledges  of  its  stock,  procured  the  con- 
veyance by  the  company  to  third  parties  of  almost  all  of  its 
property.  The  pledgees  brought  suit  to  set  aside  the  deeds, 
and  for  other  relief.  No  transfer  on  the  books  being  required 
to  constitute  a  valid  title  to  the  stock,  the  pledgees  possessed 
a  right  under  their  special  ownership,  to  defend  the  property 
of  the  corporation  paramount  to  the  right  of  the  pledger,  or 
of  any  subsequent  purchaser  of  the  same  stock  from  the 
legal  owner  while  the  certificates  remained  in  their  posses- 
sion. Nor  would  they  be  required  to  bring  an  action  in  the 
name  of  the  corporation  having  no  control  over  its  proceed- 
ings.1 Pledgees  of  stock,  having  the  legal  title,  and  regis- 
tration on  the  books  of  the  company,  were  given  equitable  aid 
in  protecting  the  property  represented  by  the  shares  from 
diversions  or  liens  improperly  created,  notwithstanding  the 
pledger's  right  of  redemption,  and  equitable  reversionary 
interest  in  the  stock.1 

1  Baldwin   v.  Canfleld,  26  Minn.         »  Vail  «.  Hamilton,  85  N.  Y.  453. 
43. 


308          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER  XXVIII. 

THE  PLEDGEE,  UPON  TRANSFER,  A  STOCKHOLDER 

§282.    The  pledgee,  upon  transfer,  a  stockholder. 

283.  Or  by  his  acts,  in  relation  to  the  stock,  voting,  receiving  dividends, 

etc. 

284.  The  rule  as  controlled  by  statutory  provisions. 

285.  The  pledgee  of  stock  not  released  until  re  transfer. 

286.  Transfer  so  as  to  protect  pledgees  from  liabilities. 

287.  Equitable  relief  of  pledgor  as  against  transfer. 

288.  The  transfer  of  title  by  pledgee  not  a  conversion  of  the  stock. 

§  282.  THE  PLEDGEE,  UPON  TRANSFER,  A  STOCK- 
HOLDER.— The  pledgee  of  certificates  of  stock,  indorsed 
with  power  of  attorney  to  transfer,  who  has  obtained 
transfer  on  the  books  of  the  company  and  received  new 
certificates,  becomes  by  his  voluntary  act,  a  stockholder  in 
such  company,  with  all  the  rights  and  liabilities  of  that 
position.  By  means  of  such  transfer  and  the  issue  of  such 
new  certificates,  the  pledgee  acquires  a  complete  and  ab- 
solute title  to  the  shares  of  stock  deposited  as  collateral 
security,  and  is  enabled  to  render  his  security  available  by 
sale,  upon  default  of  the  pledgor  upon  the  principal  debt, 
and  notice  of  sale.  In  the  absence  of  statutory  restriction, 
no  stockholder  can  have  greater  rights,  or  be  subject  to 
other  liabilities,  than  the  pledgee  thus  transferring  his 
stock  collaterals  upon  the  books  of  the  company  issuing  the 
same,  and  receiving  new  certificates.1  Any  secret  trust 

1  National  Bank  c.  "Wntsontown  Griswold,  18  Blatch,  555;  Wheelock 

Bank,  105  U.  8.  217;  National  Bank  v.  Kost,  77  111.  296;  Adams  ».  Stur- 

v.  Case,    99  U.  8.  628;   Pullman  v.  gess.  55  Ib.  468;  Adderley  v.  Storm, 

Upton,  96  Ib.  328;  Bowden  c.  Farm-  3  Hill,  634;  Roosevelt  v.  Brown,  11 

era'  Bank,  1  Hughes,  307;  Heath  t>.  N.  Y.  18;  In  re  Empire  City  Bank, 


THE  PLEDGEE  A  STOCKHOLDER. 


3G9 


existing  as  between  the  pledgor  and  pledgee  of  stock  col- 
laterals, under  such  transfer  and  issue  of  new  certificates, 
will  afford  no  defense  to  the  pledgee  as  against  third 
parties  who  have  acted  upon  the  statements  as  to  ownership 
of  stock  appearing  upon  the  books  of  the  company.  He 
assumes  the  liabilities  as  well  as  enjoys  the  rights  and 
privileges  of  being  a  stockholder.1  Such  transfer  by  the 
pledgee  upon  the  books  of  the  company  severing  the  rela- 
tion theretofore  existing  between  the  pledger  and  the 
company,  the  liens  or  claims  existing  upon  such  stock  as  to 
the  latter  no  longer  have  any  vitality.  The  transfer  by  the 
corporation  is  an  abandonment  of  any  such  lien,  the 
pledgee,  as  a  new  stockholder,  entering  into  his  relations  with 
the  company  entirely  untrammeled  by  any  antecedent  claims.* 


18  Ib.  199;  Johnson  «.  Underbill,  52 
Ib.  203;  Viiil  v.  Hamilton,  85  Ib. 
453;  Brcwstcr  v.  Sime,  42  Cal.  139; 
Hale  v.  Walker,  31  Iowa.  344;  Al- 
bert v.  Savings  Bank.  1  Md.  Cli.  407; 
Magruder  v.  Colston,  44  Md.  349; 
Holyoke  Bank  v.  Burham,  11  Cash. 
183;  Bank  v.  Goodman,  9  Cush.  576; 
Crease  v.  Babcock,  10  Mete.  525; 
Barre  Nat.  Bank  v.  Hingham  Man. 
Co.,  127  Mass.  563,  571 ;  JHcCalla  n. 
Clark,  55  Geo.  53;  Aultman's  App. 
98  Pa.  St.  516;  Pailroad  Go.v.  Stew- 
art, 41  Ib  54;  Griswold  v.  Iseligman, 
72  Mo.  110;  Fisher  ».  Seligman,  75 
Ib.  13;  see  Burgess  v.  Seligman, 
107  U.  S.  Rep.  20;  Franklin  Bauk  v. 
Commercial  Bank,  36  Ohio  St.  350; 
In  re  Tahiti  Cotton  Co.,  L.  R.  17 
Eq.  273;  In  re  Northern  Assam  Tea 
Co.,L.  R.  10  Eq.  458.  But  a  pledgee 
of  shares,  although  receiving  them 
with  full  power  of  attorney  to  trans- 
fer, can  only  become  the  owner 
thereof  by  a  bona  fide  sale  upon  de- 
fault, and  purchase,  no  transfer  hav- 
ing been  made  upon  the  books  of 
the  company.  Until  such  sale  and 
24 


purchase,  the  pledgee  is  not  entitled 
to  the  rights  nor  subject  to  the  li- 
abilities of  an  owner  of  shares. 
Bceeher  v.  Wells  Flouring  Mills  Co. 
1  McCrary,  62. 

1  Aultman's  App.  98  Pa.  St.  516. 

1  National  Bank  v.  Watsontown 
Bank,  105  U.  S.  217.  A  pledge  of 
a  certificate  of  stock  in  the  Walson- 
lown  Bank  was  made  to  the  Cecil 
National  I'ank  upon  a  discount  of 
two  notes,  with  power  of  sale  of  the 
collaterals  upon  non-payment.  De- 
fault occurring,  the  pledgee  forward- 
ed the  certificate  to  the  bank  for 
transfer,  which  was  done  by  the  en- 
try in  a  stock  ledger  of  debtor  and 
credit  items,  but  no  certificate  was 
forwarded,  the  pledgee  requesting  the 
cashier  to  sell  the  stock,  which  was 
done  with  a  few  shares.  The  pledgor 
became  insolvent,  whereupon  the 
bank  refused  to  transfer,  claiming  a 
statutory  lien  on  the  stock.  The 
court  (Matthews,  Jus.)  say:  "A 
complete  transfer  of  the  title  to  the 
stock  upon  the  books  of  the  bank, 
it  is  not  doubted,  would  have  the 


370 


QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 


§  283.  OR  BY  HIS  ACTS  IN  RELATION  TO  THE  STOCK, 
VOTING,  RECEIVING  DIVIDENDS,  ETC. — A  person  may  by  his 
acts  or  conduct  in  respect  to  the  stock  of  a  corporation, 
render  himself  liable  to  the  responsibilities  of  a  stockholder, 
and  will  be  estopped  to  deny  such  liability  as  against  third 
persons,  creditors,  and  others  who  have  been  deceived 


effect  to  vest  it  in  the  transferee, 
free  from  any  claim  or  lieu  of  the 
bank.  The  consent  of  the  bank, 
made  necessary  to  such  transfer,  is 
the  waiver  of  its  right,  as  its  refusal 
•would  be  the  assertion  of  it.  The 
transfer,  when  thus  consummated, 
destroys  the  relation  of  membership 
between  the  corporation  and  the  old 
stockholder,  with  all  its  incidents, 
and  creates  an  original  relation  with 
the  new  member,  free  from  all  ante- 
cedent obligations.  This  legal  rela- 
tion and  proprietary  interest,  on 
which  it  is  based,  are  quite  independ- 
ent of  the  certificate  of  ownership, 
which  is  mere  evidence  of  title. 
The  complete  fact  of  title  may  very 
well  exist  without  it.  All  that  is 
necessary,  when  the  transfer  is  re- 
quired by  law  to  be  made  upon  the 
books  of  the  corporation,  is  that  the 
fact  should  be  appropriately  record- 
ed in  some  suitable  register  or  stock 
list,  or  otherwise  formally  entered 
upon  its  books.  For  this  purpose 
the  account  in  a  stock  ledger,  show- 
ing the  names  of  the  stockholders, 
the  'number  and  amount  of  the 
shares  belonging  to  each,  and  the 
sources  of  their  title,  whether  by 
original  subscription  and  payment 
or  by  derivation  from  others,  is 
quite  suitable,  and  fully  meets  the 
requirements  of  the  law.  Accord- 
ingly, when  the  cashier  of  the  Wat- 


sontown  Bank  received  from  Tome 
the  certificate  with  the  authority 
for  its  transfer  to  him  duly  executed 
by  Powell  &  Co.,  and,  in  pursuance 
of  the  request  to  make  the  transfer, 
charged  it  in  the  account  against  the 
former  owner,  and  gave  to  Tome 
the  corresponding  credit,  the  latter 
became  a  stockholder  in  the  bank, 
invested  with  the  legal  title  to  the 
stock,  and  with  all  the  rights,  powers, 
and  privileges  belonging  to  that  char- 
acter. Nothing  more  remained  to  be 
done  to  make  the  conve3rance  of 
title  complete  and  absolute,  and,  so 
far  as  the  bank  was  concerned,  it 
was  irrevocable.  It  had  consented 
to  the  transfer,  and  the  transfer  had 
been  made.  Thence-forward  the 
rights  of  Tome  in  respect  to  the 
stock  in  question  were  all  that  they 
could  have  been  if  it  had  be- 
longed to  him  by  virtue  of  an  orig- 
inal subscription.  The  claim  of  the 
bank  upon  it,  based  upon  the  exist- 
ing relation  with  the  former  owner, 
ceased  when,  with  its  consent  and 
through  its  act,  that  relation  ceased. 
The  Cecil  National  Bank,  then, 
had  become  the  owner  of  the  legal 
title  to  the  stock  which  Powell  & 
Co.  transferred,  and  was  entitled  to 
demand  recognition  from  the  bank 
of  its  rights  as  a  stockholder,  and 
to  the  customary  certificate,  as  evi- 
dence of  its  ownership." 


THE  PLEDGEE  A  STOCKHOLDER. 


371 


thereby  to  their  loss.1  In  the  absence  of  restrictive  statutes, 
the  pledgee  of  certificates  of  stock,  indorsed  and  transferred 
on  the  books  of  the  company,  has  a  right  to  vote  at  its  meet- 
ings. His  name  appearing  as  stockholder  upon  the  records 
of  the  corporation,  he  becomes  for  all  purposes  a  stockholder. 
The  right  to  vote  is  an  incident  of  the  pledge,  and  according 
to  the  presumed  intentions  of  the  parties.*  Where  such 
stock  remains  in  the  name  of  the  pledger  on  the  books  of 
the  company,  the  right  to  vote  remains  with  him.1  A 
pledgee  holding  certificates  of  stock  as  security,  who,  after 
transfer  thereof  and  issue  of  new  certificates,  votes  at  meet- 
ings of  the  company,  is  not  liable  to  an  action  of  trover  for 
the  conversion  of  such  certificates.4  Nor  will  a  court  of 
equity  grant  its  restraining  power  in  aid  of  a  pledger  of 
stock  against  a  trustee  who  is  holding  the  same  as  collateral 


1  Webster  v.  Upton,  91  U.  S.  65  ; 
Upton  v.  Trebilick,  Ib.  45;  National 
Bank  t>.  Case,  99  Ib.  628;  Farrar  v. 
Walker,  3  Dill.  506;  Bank  t>.  Good- 
man, 9  Gush.  576;  American  Ry. 
Frog  Co.  0.  Haven,  111  Mass.  398; 
State  v.  Leete,  16  Nev.  242;  Whee- 
lock  v.  Kost,  77111.  296;  Griswoldv. 
Seligman,  72  Mo.  110;  Fisher  v. 
Seligman,  75  Ib.  13;  in  re  Strafforn's 
Exec.  3  DeG.  &  S.  31;  Davidson's 
case,  3  DeG.  &  S.  21 ;  Tracy  v.  Yates, 
18  Barb.  152;  Spear  v.  Crawford,  14 
Wend.  20  ;  Burr  «.  Wilcox,  22  N.Y. 
551 :  Wheeler  t>.  Miller,  90  N  Y.  353. 

*  Ex  partc  Wilcocks,  7  Cow.  410 ; 
in  re  Barker,  6  Wend.  509 ;  in  re 
Long  Island  R.  R.  Co.  19  Ib.  37; 
Adderly  v.  Storm,  6  Hill,  624;  Rose- 
veil  v.  Brown,  11  N.  Y.  149;  in  re 
Empire  City  Bank,  18  Ib  199  ;  Vail 
v.  Hamilton,  85  Ib.  453 ;  Chase  v. 
Bank,  19  Pick.  584 ;  Griswold  v.  Sel- 
igman,  72  Mo.  110;  Fisher  v.  Selig- 
man, 75  Ib.  13;  Railroad  Co.  v. 
Stewart,  41  Pa.  St.  54;  Hoppin  v. 


Buff  urn,  9  R.  I.  513;  see  Burgess  v. 
Seligman,  107  U.  S.  Rep.  20.  "A 
person  in  whose  name  the  stock  of 
the  corporation  stands  on  the  books 
of  the  corporation  is,  as  to  the  cor- 
poration, a  stockholder,  and  has  the 
right  to  vote  upon  the  stock.  *  * 
Nor  would  this  result  follow  any  the 
less  certainly  if  the  shares  of  stock 
were  received  in  pledge  only  to  se- 
cure the  payment  of  a  debt,  provid- 
ing the  shares  were  transferred  on 
the  books  of  the  company  to  the 
name  of  the  pledgee,"  Franklin 
Bank  v.  Commercial  Bank,  36  Ohio 
St.  10. 

1  McDaniels  v.  Flower  Brock 
Manuf.  Co.  22  Vt.  274;  Merchants' 
Bank  ®.  Cook,  4  Pick.  205 ;  Strong 
«.  Smith,  15  Hun,  222 ;  in  re  Barker, 
6  Wend.  509 ;  in  re  Cecil,  36  How. 
Pr.  477 ;  ex  parte  Wilcocks,  7  Cow. 
410. 

4  Heath  v.  Silverthorn  Co.  39  Wis. 
146. 


3"2          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

security  for  the  benefit'of  a  third  person,  the  same  having  been 
transferred  to  the  name  of  the  trustee  to  prevent  the  pledgor 
from  voting  thereon.  Relief  will  not  be  given  although  by 
the  allegations  of  the  bill  the  pledger  would  suffer  irrepara- 
ble injury  if  the  trustee  should  be  permitted  to  vote,  but 
presenting  no  facts  in  support;  nor  a  writ  of  injunction 
issued  to  restrain  the  violation  of  a  mere  legal  right  of  prop- 
erty.1 The  receipt  of  dividends  on  stock  is  sufficient  to  make 
a  man  a  stockholder,  as  the  responsibilities  of  the  position 
go  with  the  advantages.* 

§  284.  THE  RULE,  AS  CONTROLLED  BY  STATUTORY  PRO- 
VISIONS.— The  liabilities  of  a  holder  of  certificates  of  stock  as 
collateral  security  as  a  stockholder,  are  the  subject  of  statu- 
tory regulation.  The  provisions  of  such  statutes  generally 
relieve  the  pledgee  of  stock  from  any  personal  liability  as 
stockholder,  although  he  has  received  the  full  title  to  the 
stock,  and  has  the  better  to  render  his  security  more  avail- 
able procured  the  transfer  of  such  stock  to  his  own  name 
on  the  books  of  the  company  and  received  new  certifi- 
cates. The  responsibilities  of  a  stockholder  are  placed  by 
such  statutes  upon  the  pledger.  In  a  Maryland  case,  in 
which  state,  under  statutory  provisions,  the  holders  of  stock 
as  collateral  security  are  exempted  from  liability  as  stock- 
holders, an  advance  of  money  was  made  for  the  benefit  of  a 
corporation,  and  as  collateral  security  a  certificate  of  stock 
was  issued  to  the  pledgee,  and  subsequently  indorsed  by  the 
president  of  the  company  as  being  issued  as  "collateral 
security."  Creditors  of  the  company  were  not  allowed,  in  a 
suit  in  equity,  to  enforce  the  pledgee's  alleged  liability  as 
stockholder.3  And  in  a  New  York  case,  under  a  like  stat- 
ute, and  imposing  the  liabilities  of  stockholders  upon  the 
pledger,  the  pledgee  was  permitted  to  show  that  the  trans- 

1  McHenry  v.  Jewell,  90  N.  Y.  58;  JInlcc.  Walker,  31  Iowa,  344;  Whcc- 

rcv.  s.  c.  20  Hun,  453.  ler  v.  Kosl,  77  111.  296. 

»  Pullman  v.  Upton,  96  U.  S.  328  :  «  Matthews  v.  Albert,  24  Md.  527. 
National  Bunk  v.  Case,  99  Ib.  62S; 


THE   PLEDGEE   A    STOCKHOLDER.  373 

fer  of  the  legal  title  of  the  stock  on  the  books  of  the  com- 
pany, and  the  issue  of  certificates,  were  onl}r  for  the  purpose 
of  collateral  security.1 

In  Missouri  it  is  provided  by  statutes  that  no  person 
holding  stock  as  collateral  security  shall  be  personally  liable 
as  a  stockholder,  but  the  pledger  is  considered  as  holding  the 
stock,  and  liable  ;  and  that  upon  the  dissolution  of  corpora- 
tions, stockholders  may  be  sued  directly  upon  their 
liability  by  judgment  creditors  of  the  company.  The  Su- 
preme Court  of  Missouri,*  construing  these  provisions, 
refused  to  apply  such  exemption  in  a  case  where  a  corpora- 
tion had  pledged  its  own  unissued  and  unsubscribed  stock 
to  New  York  bankers  as  collateral  security  for  advances, 
and  to  secure  the  payment  of  bonds  to  be  negotiated  by 
them  for  the  benefit  of  the  company,  as  in  such  case  there 
could  be  no  pledger  to  whom  creditors  could  resort,  as  pro- 
vided in  the  statute.  The  banking  firm  having  received 
the  legal  title  to  the  stock,  although  the  transfer  was 
described  in  the  original  agreement  as  being  "intrust," 
and  the  stock  certificates  were  entered  upon  the  stock 
ledger  as  being  "  held  in  escrow,"  and  voted  by  proxy  at 
an  annual  meeting  of  the  stockholders,  and  obtained  control 
of  the  organization,  was  estopped  to  deny  it  was  a  stock- 
holder, and  under  statutory  liability  to  judgment  creditors 
for  debts  of  the  company  after  its  legal  dissolution.  The 
United  States  Supreme  Court,  considering  the  statutes, 
upon  a  claim  of  another  judgment  creditor  arising  out  of 
the  same  transactions,3  found  the  transfer  to  be  clearly 
one  of  collateral  security,  the  stock  being  held  by  the  bankers 
for  their  own  security  and  that  of  the  purchasers  of  bonds 
issued  in  connection  therewith  ;  that  as  the  Missouri  statute 
recognized  the  holding  of  stock  as  collateral  security 
without  a  pledgee  incurring  liability  as  a  stockholder,  no 

1  McMahon  v.  Macy,  51  N.  Y.  Wagner's  Stats.  Mo.  c.  27,  Art.  1, 

155.  §22 ;  c.  27,  Art  1,  §9. 

!  Griswold  «.  Seligman,  72  Mo.  110;  3  Burgess  v.  Scligman,  107  U.  S. 

Fisher  v.  Seligman,  75  Ib.  13 ;  1  Rep.  20. 


374         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

one  could  complain  except  the  other  stockholders  of  the 
fact  of  voting  by  the  pledgees,  or  of  their  obtaining  control 
of  the  company  under  a  previous  understanding,  the 
transaction  resulting  in  no  injury,  but  rather  a  benefit  to 
creditors.  The  stock  stood  as  security  for  large  advances 
mude  in  good  i'<iiili  by  the  pledgees,  the  money  being  used 
for  the  benefit  of  the  company,  which  was  itself  primarily 
liable  for  its  debts. 

§  285.  THE  PLEDGEE  OF  STOCK  NOT  RELEASED,  UNTIL 
RE-TRANSFER. — The  liability  of  the  pledgee  of  stock  who 
has  caused  transfer  of  the  same  upon  the  books  of  the  com- 
pany is  continued  as  to  the  company  and  creditors,  notwith- 
standing the  payment  of  the  debt  or  obligation  for  which 
the  stock  was  indorsed  as  collateral.  The  liability  ceases 
only  upon  a  re-transfer  of  the  stock  to  the  name  of  the 
pledger.1  Such  liability  cannot  be  avoided  by  a  colorable 
transfer  to  an  irresponsible  person.  In  such  case  the 
transaction  will  be  decreed  to  be  a  fraud  on  the  creditors  of 
the  corporation,  and  the  transferrer  held  to  the  same  lia- 
bility as  before.*  As  said,  in  a  late  Missouri  case,  in- 
volving the  liability  of  a  pledgee  of  stock,  who  had  taken 
legal  title  thereto,  "  Courts  will  be  sedulous  in  their 
endeavors  to  defeat  all  schemes  and  contrivances  whereby 
parties  may  seek  to  receive  and  enjoy  the  benefits  and  priv- 
ileges incident  to  the  position  of  stockholders,  and  at  the 
same  time  be  exonerated  from  the  burdens  imposed  by  law."  • 
The  necessity  of  a  re-transfer  to  avoid  liability  is  illustrated 
in  a  case  where  a  pledgee  having  transferred  certificates  of 
stock  held  as  collateral  security  to  his  own  name,  retained 
the  title  to  the  stock  at  the  request  of  the  pledgor,  after 
payment  of  the  debt,  in  order  to  sell  the  same  for  the  hitter's 

'Adderly  v.  Storm,  6  Hill,  624;  »Bowden  t>.  Johnson,  107  U.  8. 

Johnson  v.  Underhill,  52  N.  Y.  203  ;  Rep.  251 ;  National  Bank  v.  Case,  99 

Commercial  Bank  «.  Kortright,  20  U.  S.  628 ;    Davis    v.    Stevens,    17 

Wend.  91;  Walker  *.  Bennett,  18  C.  Blatchf.  259. 

B.  845.  •  Fisher  v.  Seligman,  75  Mo.  13. 


THE   PLEDGEE   A    STOCKHOLDER.  875 

benefit.  The  company  became  insolvent,  and  the  pledgee 
returned  the  stock  to  the  pledgor  indorsed  in  blank.  While 
holding  the  stock  as  collateral  security  the  pledgee  was, 
under  a  statutory  provision,  relieved  from  liability  as  a 
stockholder;  but  after  the  debt  was  paid,  the  relation  of 
of  pledgee  and  pledgor  ceased,  and  as  to  creditors  of  the 
company  the  pledgee  became  a  stockholder  with  all  the 
accompanying  liabilities.1 

§286.  TRANSFER  so  AS  TO  PROTECT  PLEDGEE  FROM 
LIABILITIES. — The  transfer  of  certificates  of  stock  as  collat- 
eral security  for  an  independent  debt  may  be  made  so  as  to 
show  the  restricted  interest  of  the  pledgee  therein,  and  at 
the  same  time  protect  him  from  liability  as  a  stockholder. 
Such  notice  may  be  given  by  the  terms  of  the  indorsement 
on  the  certificate  itself,  and  will  charge  subsequent  trans- 
ferees. The  transfer  should  show  that  it  is  made  as  and  for 
collateral  security,  and  should  sufficiently  describe  the  debt 
to  secure  the  payment  of  which  it  is  delivered  in  pledge.* 
Upon  a  transfer  of  certificates  of  stock  in  pledge,  an  indorse- 
ment showing  the  delivery  to  be  "  as  collateral  security  " 
was  sufficient  notice  of  the  pledgee's  limited  interest  to 
entitle  him  to  the  benefit  of  statutory  exemptions  from 
liability.3  But  in  another  case,  \\here  a  certificate  of  stock 
had  been  originally  pledged  showing  that  it  wtis  transferred 
"as  collateral,"  and  upon  payment  the  certificate  was 
indorsed  in  blank  by  the  pledgee  to  the  pledgor,  who  again 
pledged  the  same  for  value,  it  was  held  the  second  pledgee 
was  not  put  upon  inquiry  by  the  words  "  as  collateral  " 
upon  the  certificate,  the  name  of  the  pledgor  not  appearing 
thereon,  and  the  possession  of  the  pledgor  of  itself  not  being 
sufficient  to  .show  that  he  was  the  person  for  whom  the 
stock  had  formerly  been  held  as  collateral.  Notwithstand- 

1  Erskine  «.  Lowenstein,  11  Mo.          *  Matthews    v.    Albert,    24    Md. 
App.  595.  527. 

8  Barre    Nat.  Bank    v.   Hingham 
Manuf.  Co.  127  Mass.  563,  571. 


376         QUASI-?'EGOTIABLE   COLLATERAL  SECURITIES. 

ing  the  certificate  was  grossly  tainted  with  forgery  commit- 
ted by  the  pledgor,  who  was  bankrupt,  the  second  pledgee 
was  allowed  to  recover  on  the  indorsement  made  by  the 
first  pledgee.1  The  holder  of  a  certificate  of  stock  may  also 
show  by  evidence  outside  of  the  certificate,  although  its 
statements  are  absolute  as  to  his  ownership  thereof,  that 
such  certificate  does  not  belong  to  him  as  owner ;  and  the 
same  rule  applies  as  to  statements  as  to  who  are  stockhold- 
ers, contained  in  the  books  of  a  corporation.* 

§  287.  EQUITABLE  RELIEF  TO  PLEDGOR  AS  AGAINST  TRANS- 
FER.— Where  certificates  of  stock  have  been  pledged  as  col- 
lateral security  by  delivery,  together  with  a  power  of  attorney 
to  transfer,  and  the  pledgee  has  elected  to  make  such  transfer 
on  the  books  of  the  company  and  to  receive  a  new  certifi- 
cate in  his  own  name,  so  as  to  become  vested  with  the  legal 
title  and  ownership  of  the  stock,  a  court  of  equity,  upon  a 
proper  case,  will  entertain  a  bill  for  the  purpose  of  establish- 
ing the  trust  existing  in  such  shares,  and  if  entitled  thereto, 
relief  will  be  given  the  pledgor,  generally  by  a  decree  re- 
quiring the  certificates  of  stock  to  be  surrendered  properly 
indorsed  to  the  pledgor  upon  the  equitable  terms  of  payment 
of  the  loan  with  interest,  and  such  assessments  as  have  been 
rightfully  paid  by  the  pledgee,  and  subject  to  proper  credits 
for  dividends  received  by  him.'  Parol  testimony  is  received 
to  establish  the  fact  that  the  transfer  of  such  certificates 
was  intended  as  collateral  security  only,  although  absolute 
in  terms.4  This  principle  was  applied  to  a  stock  transac- 

1  Matthews  v.   Mass.  Nat.  Bank,  ton  ».  Manchester  II.  "R  Co.  42  N.II. 

Holmes,  410.  424  ;    MeCalla   ».    Clark,    55    Ga. 

•  McMahon  v.  Macey,  51  N.Y.  155;  53. 

Tonica  etc.  Ry.  Co.  v.  Stein,  21  111.  «  Ibid  McMnlion  v.  Macy,  51  N.Y. 

90;  Jon^s  v.  Portsmouth  Ry.  Co.  32  155;  Burgess  v.  SHignvm,  107  U.  S. 

N.  H.  544;  Pittsburgh   Ry.  Co.  v.  Rep.  20;    Latlirop  v.  Kneelund,  46 

Stewart,  41  Pa.   St.  54;  Lathrop  v.  Burl).  433,  Jones  v.  Portsmouth  H.R. 

Kneeland,  40  Barb.  432.  Co.  82  N  II. 544 ;  Pittsburgh  Ii.It.Co. 

•Brick    v.  Brick,  98  U.  S.   514;  ».  Stewart,  41  Pn  St.  54;  Tunica  U. 

Newton  v.  Fay,  10  Allen.  505;  Gil-  R.  Co.  t.  Stein,  21  111.  90. 
pin  t.  Howell,  5  Pa.  St  41;  Pink*>- 


THE   PLEDGEE  A   STOCKHOLDER.  377 

tion,  where  the  assignment  of  title  was  absolute,  the  rule 
excluding  parol  testimony  to  vary  or  contradict  a  written 
instrument  having  reference  only  to  the  language  used 
therein  and  not  forbidding  inquiry  into  the  object  of  the 
parties  in  executing  and  receiving  the  same.  A  deed  may 
be  shown  by  parol  evidence  to  have  been  made  to  defraud 
creditors,  to  give  a  preference,  or  to  secure  a  loan  ;  and  the 
rule  applies  with  equal  force  to  instruments  purporting  to 
transfer  personal  property.1 

§  288.  THE  TRANSFER  OF  TITLE  BY  PLEDGEE  NOT  A 
CONVERSION  OF  STOCK. — The  purpose  of  indoising  certifi- 
cates of  stock  with  an  irrevocable  power  .  of  attorney 
to  transfer  and  generally  of  substitution,  is  to  enable  the 
pledgee  upon  default  in  the  principal  debt,  to  lender  his 
securities  available.  In  the  absent  of  such  indorsement  of 
the  power  of  attorney  to  transfer  certificates  of  stock,  the 
pledgee  takes  a  doubtful  security,  as  his  title  is  but  equi- 
table, and  subject  to  prior  equities,  whether  known  or  not.9 
The  pledgee,  holding  the  legal  title  to  the  certificates  as 
between  the  parties  to  the  contract  of  pledge  it  is  essential 
in  certain  states,  under  statutory  enactments,  in  order  to 
protect  his  collateral  securities  against  the  claims  of  third 
persons,  and  of  the  corporation,  that  transfer  should  be 
made  upon  the  books  of  the  company,  and  new  certificates 
issued.  A  transfer  and  the  issue  of  new  certificates  is  not 
a  conversion  of  the  stock.3  The  same  right  of  transfer  for 
better  security  as  against  the  pledger,  may  be  exercised  by 

'Brick    v.    Brick,  98    U.S.  514;  whore  stock  was  held  as  collateral  to 

Burgess  v.  Seligman,  107  U.  S.  Rep.  secure  a  debt,  and  transfened  on  the 

20.  books  of  the  company  to  relatives  to 

*  Rich  v.  Boyce.  89  Md.  314,  327.  avoid  liability   as  stockholder,    the 

1  Rich   v    Boyce,  supra;  Heath  v.  certificates     being    indorsed     with 

Griswold.  18  Blatchf.  5">5;  Adams®.  power  of  attorney  to  transfer  to  the 

Btur^es.  55  111.  468;  Heath  v.  Silver-  pledgee.       Heath   v.   Griswold,    18 

thorn  Co.  39  Wis.  146.    The  pledgee  Blatchf.  555. 
was  uot  charged  with  a  conversion 


378         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

a  sub-pledgee  holding  certificates  of  stock  with  full  title.1 
A  transfer  of  certificates  of  stock  held  in  pledge  to  third 
persons  with  a  view  of  avoiding  injury  to  the  credit  of  the 
pledgee,  he  retaining  the  control  and  possession  of  the  new 
certificates,  indorsed,  ready  to  be  returned  to  the  pledger, 
will  not  amount  to  a  conversion  of  the  stock,  in  the  absence 
of  tender  or  payment  of  the  debt,  demand  of  the  stock,  and 
refusal  to  transfer.*  Nor  is  it  a  conversion,  as  against  a 
partnership,  where  shares  of  stock  were  transferred  by 
one  of  its  members,  holding  them  for  the  benefit  of  a  third 
person,  with  power  of  sale,  and  subsequent  transfers  were 
made  to  and  from  the  firm,  with  all  of  which  it  had  nothing 
to  do,  the  individual  partner  keeping  the  certificates  in  l)is 
possession.1 

1  In  re  Tahiti  Cottou  Co.  L.  R.  17         *  Day  v.  Holmes,  103  Mass  306. 
Eq.  273.  «  Adams  «.  Sturges,  55  111.  468. 


THE  PLEDGEE'S  RIGHTS.  379 


CHAPTER    XXIX. 

THE    PLEDGEE'S    RIGHTS,    AS    AGAINST    LIENS. 

£289.  The  pledgee  of  stocks,  \vhcn  not  subject  to  liens  of  company. 

290.  The  company's  lien,  by  statute  or  charter. 

291.  Limitations  and  loss  of  company's  lien. 

292.  The  enforcement  of  company's  lien,  as  against  pledgee. 

293.  The  pledgee  of  stocks  a  holder  for  value  against  creditors. 

294.  Pledges  with  transfer  supported  as  against  creditors. 

295.  The  creditor's  lien,  as  against  pledgee,  under  statutoiy  enactments. 

§  289.  PLEDGEES  OF  STOCK,  WHEN  NOT  SUBJECT  TO 
LIENS  OF  COMPANY. — A  pledgee  for  value,  without  notice 
of  equities,  of  certificates  of  stock  receiving  the  same  with 
a  power  of  attorney  to  transfer  indorsed  thereon,  so  as  to 
convey  the  legal  title  and  ownership,  in  the  usual  course  of 
business,  is  protected  as  against  secret  liens  of  the  company 
equally  with  purchasers  for  value  in  good  faith  of  such  cer- 
tificates of  stock.  Such  pledgees,  holding  the  legal  title 
and  possession  of  the  certificate,  are  not  subject  to  liens  or 
claims  of  the  company  issuing  the  same,  based  upon  any 
rule  or  by-law  restricting  the  transfer  of  stock  until 
payment  of  the  indebtedness  of  the  pledgor,  where  the  lien 
is  not  given  by  statutory  enactment  or  by  provisions  of  the 
charter  of  the  corporation.1  Such  secret  liens  are  not  favored 

1  Case  v.  National  Bank,  100  U.  Smith  v.  Slaughter  House  Assn.  30 

S.  446;  National  Bank  V.  Watson-  Ib.    1478;   Moore  v.  Bank,   52  Mo. 

town  Bank,  105  Ib.  217;  Carroll  v.  379;   Carroll  v.  Mullanphy   Savings 

Mullanphy  Co.,    8   Mo.  App.    249;  Bank,  8  Mo.  App.  249;  Union  Bank 

Driscoll  «.  Bradley  Manf .  Co.  59  N.  v.  Laird,    2  Wheat.    390 ;   Bank   v. 

Y.    96;    New    Orleans    Nat.    Bkg.  Lanier,    11    Wall.  369;    Bullard    v. 

Assn.  v.    Wiltz,  10  Fed.    Rep.  330;  Bank,  18  Wall.  598;  Bank  of  Attica 

Bryon  v.  Carter,  22  La.  Ann.    98;  v.   Manufacturers'  Bank,   20  N.  Y. 


380         QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

as  against  bona  fide  holders  for  value  of  certificates  of  stock 
indorsed  with  a  power  of  attorney  to  transfer,  thus  holding 
the  title  to  the  shares  of  stock.  No  presumption  arises 
in  favor  of  the  company  refusing  to  transfer  such 
shares,  by  reason  of  any  claim  of  which  such  holder 
for  value  is  not  chargeable  with  notice.1  A  power 
given  by  charter  provisions  to  pass  by-laws  for  the 
regulation  of  transfers  of  stock  certificates  will  not  en- 
title a  company  to  create  a  secret  lien  upon  the  shares  of 
stocks  in  the  hands  of  a  bona  fide  holder  for  value,  without 
notice  of  the  by-law  ;*  nor  to  pass  a  by-law  claiming  a  lien 


505;  Rosenback  v.  Bank,  53  Barb. 
495;  Massachusetts  Iron  Co.  ». 
Hooper,  7  Cush.  183;  Sargcant  v  Ins. 
Co.  8  Pick.  90;  Nesmkh  v.  Wash- 
ington Bank,  6  Ib.  329;  Steamship 
Dock  Co.  e.  Heron,  52  Pn.  St.  280; 
Geyer  v.  Insurance  Co.  3  Pittsb.  41; 
Bank  of  Holly  Springs  v.  Pinson, 
58  Miss.  421,  435.  A  general  assig- 
nee of  the  stockholder  was  held  to 
take  subject  to  the  lien  of  the  cor- 
poration. Wain  v.  Bank,  8  S.  &  H. 
73.  And  where  the  face  of  the 
stock  contained  a  statement  of  the 
liability.  Van  Sands  v.  Middlesex 
County  Bank,  26  Conn.  144.  In 
Cornick  v.  Richards,  3  Lea,  23,  the 
court  (Freeman,  J.)  say:  "  Stocks 
are  used  every  day  in  the  transac- 
tions of  our  business  men  as  col- 
laterals as  well  as  sold,  and  the  uni- 
versal practice  is  to  transfer  or  as- 
sign the  certificate  of  the  stock,  with 
a  power  of  attorney  in  blank,  to  be 
filled  up,  authorizing  the  transfer 
by  the  corporation  on  its  books  to 
the  purchaser,  on  the  presentation 
of  which  power  properly  authenti- 
cated, the  corporation  transfers  the 
stock  to  the  purchaser  or  holder; 
uud  when  the  sale  is  absolute,  it  is 


usual  to  issue  new  certificates  to  the 
party  taking  up  the  old.  Such  a 
practice  facilitates  the  easy  use  of 
this  property  in  commercial  transac- 
tions. The  rule  requiring  transfer 
on  the  books  of  the  corporation  can 
only  serve  to  give  the  creditor  who 
has  a  judgment  or  execution,  a  legal 
advantage,  who  has  never  given 
credit  on  the  faith  of  the  stocks  over 
the  other  who  has  advanced  his 
money  on  them,  and  taken  the  evi- 
dence of  his  security  by  a  transfer 
of  his  certificate.  In  such  case,  the 
equities  are  altogether  in  favor  of 
the  assignee  who  has  advanced  hit 
money  on  the  faith  ef  the  collater- 
als. " 

1  Bullard  ».  Bank,  18  Wall.  589; 
Bank  «.  Lanicr,  11  Wall.  369;  Car- 
roll v.  Mullanphy  Savings  Bank, 
8  Mo.  A  pp.  249;  Driscoll  v.  West 
Bradley  Manf.  Co.  59  N.  Y.  96; 
Mass.  Iron  Co.  v.  Hooper,  7  Cush. 
183;  Steamship  Dock  Co.  v.  Heron, 
52  Pa.  St.  280;  Sargeant  v.  Franklin 
Ins.  Co.  8  Pick.  90. 

*  Anglo-Californian  Bank  v.  Bank, 
61  Cal.  (16  C.  L.  N.  313);  Dris- 
coll 0.  West  Bradley  Manf.  Co.  59 
N.  Y.  96;  State  Ins.  Co.  v.  Gennett, 


THE  PLEDGEE'S  RIGHTS.  381 

that  all  debts  due  to  the  corporation  shall  be  discharged 
before  permitting  a  transfer  of  stock  as  against  such  bona 
fide  holder  for  value,  and  without  notice.1  In  Louisiana,  a 
pledge  of  shares  of  stock,  by  delivery  of  the  certificate,  is 
supported,  although  at  the  time  the  pledgor  be  indebted  to 
the  corporation,  and  such  transfers  were  prohibited  by  the 
charter  of  the  corporation,  shares  of  stock  not  being 
**  credits,"  within  the  meaning  of  the  Louisiana  code.7 

As  no  statutory  lien  upon  the  shares  of  their  stock- 
holders for  indebtedness  is  given  to  national  banks,  the 
delivery  of  certificates  of  stock  of  such  banks  as  collateral 
security,  with  an  irrevocable  power  of  attorney  to  transfer 
indorsed  thereon,  to  a  pledgee  for  value,  without  notice, 
defeats  any  claim  of  a  lien  on  the  stock  against  the  pledgor, 
although  the  latter  has  become  insolvent.  The  title  to 
the  shares,  as  against  such  lien,  passes  upon  a  transfer  for 
value,  in  good  faith,  of  the  certificate.1  And  an  innocent 
pledgee  for  value  of  shares  of  stock  of  a  national  bank, 
holding  them  under  indorsement,  with  irrevocable  power  to 
transfer,  will  be  entitled  to  recover,  as  against  the  bank  re- 
fusing a  transfer,  after  notice  that  the  pledgor,  who 
was  indebted  to  it,  had  been  adjudicated  a  bankrupt,  the 
value  of  the  stock  (having  first  been  paid  the  accrued  divi- 
dends) less  taxes,  to  the  amount  of  his  advance,  the  stock 
to  be  sold  at  public  sale/ 

§  290.  THE  COMPANY'S  LIEN,  BY  STATUTE  OR  CHARTER. 
— Under  general  statutes  giving  authority  to  regulate  the 
transfer  of  stock,  it  maybe  provided  that  no  transfer  shall  be 
made  upon  the  books  of  the  company  until  after  payment 

2  Md.  Ch.  100;  Billiard  v.  Bank.  18          *  National  Bank  v.  National  Bank, 
Wall.  589;  United  States  v.  Vaughan,       10   Bush.   867;    Koscnbuck  v.    Sail 

3  Binn.  394.  Springs  Nat.  Bank  53  Barb.  495. 

1  Anglo-Californian  Bank  v.  Bank,          *  Dayton  Nat.  Bank  v.  Bank,  37 
supra.  Ohio  St.  217 

9  Pilot  v.    Jackson,  32   La.  Ann. 
1286. 


382 


QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


of  all  indebtedness  to  the  company  by  the  person  who 
appears  to  be  the  owner,  and  to  whose  name  the  stock  is 
credited  on  its  books.1  Such  lien  extends  to  all  the  stock 
of  the  debtor,  although  it  greatly  exceeds  the  amount  of 
the  debt ;  nor  will  the  lien  be  barred  by  the  running  of  the 
statute  of  limitations  against  the  debt.1  Where  a  by-law 
required  the  special  consent  of  the  directors  to  a  transfer  of 


1  Pendergast  v.  Bank,  2  Sawy.  108; 
McDowell  v.  Bank  of  Wilmington, 
1  Harr.  (Del.)  27;  Lock-wood  v.  The 
Banks,  9  It.  I.  308;  Wain  v.  Bank 
of  North  America,  8  S.  &  R.  86; 
McDowell  v.  Phoenix  Fire  Ins.  Co. 
3  Paige's  Ch.  350;  McCready  v. 
Rumsey,  -  G  Duer,  574;  Leggett  ». 
Bank,  24  N.  Y.  283;  Tuttle  v.  Wal- 
ton 1  Kelly  (Geo.)  43;  Sabin  v.  Bank 
of  Woodstock,*  21  Vt.  253.  In  Na- 
tional Bank  v.  Watsontown  Bank, 
105  U.  S.  202, -the  last  named  bank 
claimed  a  lien  upon  the  stock  of  the 
pledgor  as  against  the  other  bank, 
holding  it  through  its  president,  as 
collateral  security.  The  Pennsyl- 
vania statute  regulating  banks,  sect. 
10,  art.  10,  approved  April  10, 1850, 
provided  that  "the  stock  of  the 
bank  shall  be  assignable  and  trans- 
ferable on  the  books  of  the  corpora- 
tion only,  in  such  manner  as  the  by- 
laws shall  ordain ;  but  no  stockholder 
indebted  to  the  bank  for  a  debt  actu- 
ally clue  and  unpaid  shall  be  author- 
ized to  make  a  transfer  or  receive  a 
dividend  until  such  debt  is  dis- 
charged or  security  to  the  satisfac- 
tion of  the  directors  given  for  the 
same."  The  court  (Matthews,  Jus.) 
say:  "The  title  [of  the  pledgee]  was 
unquestionably  subject  to  the  lien 
given  by  its  charter  to  the  Watson- 
town  Bank.  That  provision  when 
insisted  on  and  enforced,  would  be 


effectual  to  subject  the  beneficial  in- 
terest in  the  stock  to  the  payment  of 
any  indebtedness  from  the  stock- 
holder, making  the  tiansfcr,  to  the 
bank  for  the  debt  which,  at  the 
time  of  the  proposed  transfer,  was 
actually  due  and  unpaid.  Accord- 
ing to  the  terms  of  this  provision  the 
bank  was  properly  represented,  in 
the  act  of  transfer,  by  its  cashier; 
and  he  was  authorized  to  bind  the 
bauk,  in  consummating  the  transac- 
tion, by  virtue  of  his  office,  in  the 
absence  of  any  by-law,  according  to 
the  usage  of  the  business  and  the 
practice  of  the  particular  bank,  pre- 
sumed to  be  known  to  and  approved 
by  the  directors.  Case  v.  Rank,  100 
U.  S.  446."  The  pledgee  of  stock, 
by  delivery  of  the  certificate  and 
possession,  is  subject,  under  the 
Louisiana  Code,  to  all  the  liens  and 
privileges  which  the  law  puts  upon 
it.  Succ.  of  Rosseau,  23  La.  Ann. 
3;  Hoss  v.  Williams,  24  Ib.  568;  N. 
0.  Banking  Assn.  v.  Wiltz,  30  Ib. 
1378.  A  lien  on  stock  given  to  a 
corporation  by  its  articles  of  associa- 
tion under  a  general  law,  was  sup- 
ported as  against  a  ccstui  que  trust, 
in  New  London  Bank  v.  Brockle- 
bank,  L.  R.  21  Ch.  D.  302;  Childs  v. 
Hudson's  Bay  Co.  2  P.  Wins.  207. 

*  Geyer  v.  Insurance  Co.  3  Pittsb. 
41. 


THE  PLEDGEE'S  RIGHTS.  3S3 

stock  while  the  transferrer  was  indebted  to  the  company,  a 
lien  was  given  on  the  stock  of  one  partner  for  a  debt  owinij 
by  the  firm.1  The  lien  is  not  defeated  by  the  taking  of 
collateral  security  for  the  payment  of  any  particular  debt  of 
the  stockholder.9  And  upon  the  equitable  principle  of 
subrogation,  a  surety  or  accommodation  maker  or  indorser, 
upon  paying  the  debt,  the  creditor  corporation  having  a 
lien  under  a  statute  or  its  charter  upon  the  stock  owned 
by  the  principal  debtor,  may  enforce  such  lien.3  A 
statutory  lien  in  favor  of  a  corporation  extending  to  "  all 
debts  due  "  from  the  stockholder,  covers  an  old  indebted- 
ness upon  stock  previously  pledged  to  a  third  person,  by 
delivery  of  the  certificate  with  power  of  attorney  to 
transfer,  but  of  which  no  notice  was  given  to  the  corpora- 
tion. And  it  is  immaterial,  as  against  the  claim  of  such 
statutory  lien,  that  the  certificate  of  stock  itself  contains  no 
notice  of  any  lien  of  the  company.4  In  another  case,  the 
trustees  of  an  estate  had  invested  its  funds  in  the  capital 
stock  of  a  company,  which  was  entitled  to  a  lien  on  shares 
for  all  moneys  owing  to  it,  individually  or  jointly,  and  as 
against  all  the  holders  of  a  share.  One  of  the  trustees  was 
a  member  of  a  partnership,  which  being  in  debt  to  the  com- 
pany, became  bankrupt.  The  lien  of  the  bank  prevailed 
over  the  cestuis  que  trust,  although  as  between  the  latter 
and  the  trustees,  quaere  whether  such  an  investment  was 
authorized.5 

§  291.  LIMITATIONS  AND  LOSS  OF  COMPANY'S  LIEN. — 
A  company  is  not  allowed  to  enforce  even  a  statutory  lien 
for  an  indebtedness  incurred  by  the  assignor  of  the  certifi- 
cate of  stock,  after  notice  of  the  transfer  of  the  stock.6  Nor 

1  Mechanics'  Bank  v.  Earp,  4  4  First  Nat.  Bank  v.  Hartford  Ins. 

Rawle,  384;  Geyer  v.  Ins.  Co.  supra.  Co.  45  Conn.  22. 

*  Union  Bank  v.  Laird,  2  Wheat.  B  New  London  Bank  v.  Brockle- 

390.  bank,  L.  R  21  Ch.  D.  302. 

8  Ibid. ;  Klopp  v.  Lebanon  Bank,  6  Conant  v.  Seneca  Co.  Bank,  1 

46  Pa.  St.  88.  Ohio  St.  298. 


384          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

will  the  lien  extend  to  an  indebtedness  represented  by  a 
bill  of  exchange  held  by  a  corporation  not  then  arrived  at 
maturity,  of  which  the  stockholder  was  the  drawer.1  And 
being  a  mere  right  of  detention  on  the  part  of  the  company 
to  make  such  lien  available  for  the  actual  recovery  of  the 
debt,  a  judgment  must  be  levied  upon  the  shares,  and  the 
same  sold  under  execution.*  A  power  to  fix  the  mode  of 
transfer  of  stock  in  charter  or  articles  of  association  ex- 
cludes any  attempt  to  do  it  by  way  of  by-law.1  A  mere 
right  under  a  general  statute  authorizing  the  adoption  of 
by-laws  regulating  the  transfer  of  stocks,  will  not  support 
a  by-law  adopted  at  a  meeting  of  the  board  of  directors 
only.4  Nor  will  such  a  by-law  or  rule,  so  adopted,  be 
allowed  to  affect  the  rights  of  bona  fide  holders  of  stock, 
advancing  money  thereon,  without  notice.6 

The  right  of  a  corporation  to  assert  a  statutory  lien  on 
the  stock  of  its  shareholders  to  secure  the  paj'ment  of  their 
liabilities  to  it,  are  subject  to  waiver,  and  to  be  defeated  and 
lost  by  the  laches  of  the  corporation  in  asserting  the  same, 
where  such  enforcement  would  operate  as  a  fraud  upon 
innocent  third  parties,  holding  for  value,  and  mi.-lead  by 
assurances  equivalent  to  a  renunciation  of  the  statutory 
claims  of  the  corporation.  The  rule  is  applied  in  cases 
where,  by  reason  of  delay  in  the  assertion  of  its  lien,  a 
pledgee  holding  certificates  of  stock  which  he  is  seeking  to 
transfer  into  his  own  name,  has  lost  an  opportunity  of  ob- 
taining other  security,  or  of  availing  himself  of  other 
means  of  enforcing  his  claims  against  the  pledger.'  And 
a  corporation,  where  it  has  sold  out  the  stock  of  one  of  its 

1  In  re  Stockton  etc.  Co.  L.  R.  2  Snvinos  Bank,  8  Mo.  App.  249;  Hex 

Cb.  D.  101.  v.  Wcstwood,  2  Dow.  &  C.  21. 

1  West  Branch  Bank*.  Armstrong,  »  Bank  of  Holly  Springs  v.  Pinson, 

40  Pa.  St.  278.  58  Miss.  421;  Carroll  v.  Mullanphy 

8  Bank  of  Utica  t.  Bank,  20  N.  Y.  Banking  Co.,  supra. 

501.  •  National  Bank  v.  Watsontown 

4  Morton  etc.  Co.  t>.  Wysong.  51  Bank,  105  U.  S.17,  23;  Case  v.  Bank, 

Ind.  4:  Union  Bank  t>.  Ridgeley,  1  100  U.  S.  446. 
.  &  G.  324;  Carroll  t>.  Mullanphy 


THE  PLEDGEE'S  RIGHTS.  385 

shareholders,  under  a  power  claimed  by  it,  but  which 
authority  was  not  exercised  in  accordance  with  the  provi- 
sions of  its  charter,  is  liable  to  the  stockholder  for  the 
damages  sustained  by  such  wrongful  sale.  Nor  is  the  stock- 
holder required  to  make  the  transferee  of  the  stock,  so 
sold,  a  party  to  his  bill  seeking  relief.1 

§  i92.  THE  ENFORCEMENT  OF  COMPANY'S  LIEN  AS 
AGAINST  PLEDGEE. — The  provision  in  the  charter  of  a  com- 
pany that  a  stockholder,  before  he  can  obtain  a  transfer  of 
his  shares  on  the  books  of  the  company,  shall  be  required  to 
pay  all  moneys  due  from  him  to  the  company,  creates  no 
lien  or  charge  upon  such  shares  of  stock,  as  no  enforcement 
thereof  by  the  company,  even  by  suit  in  equity,  is  possible 
until  the  stockholder  himself  desires  to  make  such  transfer. 
A  stockholder  in  a  banking  company  having  such  charter 
provision,  made  an  equitable  mortgage  to  the  company  of 
certain  title  deeds  as  security  for  specific  loans,  and  shortly 
afterwards  died,  devising  the  estates,  the  title  deeds  of 
which  had  been  pledged,  to  certain  legatees.  The  claim  of 
the  latter  that  the  company  should  be  required  by  a  court 
of  equity  to  enforce  payment  of  its  loan  by  availing  itself  of 
its  charter  provisions  relative  to  the  stock  as  well  as  by  the 
sale  of  the  estates  covered  by  the  equitable  mortgage,  was 
not  approved.  The  provision  as  to  stock  not  being  in  any 
sense  a  security,  no  claim  for  contribution  could  arise  rel- 
ative thereto.*  And  that  if  such  claim  for  contribution  had 
arisen,  the  title  deeds  having  been  equitably  mortgaged  for 
the  specific  debt,  would  have  to  be  exhausted  before  any 
resort  was  had  to  the  stock.1 

§  293.  THE  PLEDGEE  OF  STOCKS  A  HOLDEE*  FOR  VALUE, 
AS  AGAINST  CREDITORS. — In  the  absence  of  statutory  enact- 
ments or  charter  provisions  requiring  transfer  upon  the 

'Duncan  v.  Hinckley,  2  McN.  &  'Ibid;    Bute    v.    Conyngham,    2 

G.  30.  Russ.   275,   299;    Averal  v.    Wade, 

3  In  re  Dunlop,  L.  R.  21  Cli.  D.  583.  Lloyd  &  G.  252. 
25 


380 


QUASI-NEGOTIABLE    COLLATERAL   SECURITIES. 


books  of  the  corporation  issuing  certificates  of  stock,  the 
owner  may  transfer  the  legal  title  and  ownership  of 
the  shares  of  stock  represented  thereby,  by  delivery  of  the 
certificates  indorsed  with  a  power  of  attorney  to  transfer  in 
blank,  or  filled  with  the  name  of  the  person  advancing  value 
thereon.  The  title  acquired  by  a  bona  fide  pledgee  for 
value,  without  notice,  is  not  subject  to  be  divested  or  de- 
feated by  the  subsequent  issue  of  legal  process  by  creditors 
of  the  pledgor  against  such  stocks,  although  no  transfer  of 
the  stock  has  been  made  upon  the  books  of  the  company. 
The  equity  of  the  pledgee  advancing  money  upon  the  repre- 
sentations of  the  certificates  is  preferred.1  Protection  is 
especially  afforded  to  an  innocent  pledgee  for  value,  in 
cases  where  by  reason  of  the  fraudulent  delay  and  refusal 
of  the  officers  of  a  corporation  to  make  upon  demand  the 
necessary  transfer  of  shares  of  stock"  upon  its  books,  a 
creditor  is  enabled  to  issue  legal  process  against  the  stock  as 
belonging  to  the  pledgor.* 


1  Merchants'  Nat.  Bank  t>.  Rich- 
ards, 6  Mo.  App.  454;  s.  c.  74  Mo. 
77 ;  Moore  t>.Bank,  52  Mo.379  ;  Siblcy 
V.  Quinsigamond  Nat.  Bank  133 
Mass.  515 ;  Sargent  v  Essex  Marine 
Ry.  Co.  9  Pick.  201 ;  Sergeant  v. 
Franklin  Ins.  Co.  8  Ib.  90;  Dickin- 
son v.  Central  Nat.  Bank,  129  Mass. 
279;  Boston  Music  Hall  Associa- 
tion v.  Cory.  129  Ib.  435;  Fisher  «. 
Essex  Bank,  5  Gray,  373;  German 
Union  Building  Assn.  v.  Semlmeyer, 
50  Pa.  St.  67;  Strange  *.  Houstrn 
&  T.  R.R.Co  53  Tex.  1G2;  .Manns  v. 
Brockville  Nat.  Bank,  73  Ind.  243; 
Continental  Nat.  Bank  v.  Eliot  Nat. 
Bank,  7  Fed.  Rep.  369;  N.  O.  Nat. 
Banking  Assn.u.  Wiltz,  10  Fed. Hep. 
830;  Driscoll  v.  West  Bradley  Manuf. 
Co.  59  N.  Y.  96;  Nahringfl.  Hank  of 
Mobile,  58  Ala.  204;  Broadway  Bank 
«.  McElrath,  13 N.  J.  Eq.  24:  United 
States  v.  Vaughan,  3  Binn.  394; 


Commonwealth  v.  "VVatmough,  6 
Whart.  138;  Finney's  App.  59  Pa. 
St.  308;  Lane's  App.  89  Ib.  411; 
Eby  v.  Guest,  94  Ib.  160;  Fraser 
0.  Charleston,  11  S.  C.  519;  Cornick 
v.  Richards,  3  Lea,  1 ;  Becku  ith  v. 
Burrough,  13  R.  I.  294.  Although 
under  Gen.  Stats.  Mass.  1882,  c.  133, 
§43,  it  is  provided  that  the  interest 
of  any  stockholder  in  any  corpora- 
tion organized  .under  the  authority 
of  the  State,  may  be  taken  on  exc-- 
cutiou  and  sold,  yet  the  Legislature 
has  not  defined  what  shall  be  an  at- 
tachable interest  in  stock,  but  leaves 
it  to  be  determined  by  the  common 
law  or  some  other  statute.  Boston 
Music  Hall  Assn.  v.  Cory,  12!)  Mass. 
435;  Sibley  v.  Quinsigamond  Nat. 
Bank.  13311).  515, 

*  Merchants'   Nat.  Bank  v.  Rich- 
ards, 74  Mo.  77 ;  s.  c.  6  Mo.  App.  454. 


THE  PLEDGEE'S  RIGHTS.  387 

The  holder  for  value,  without  notice,  of  certificates  of 
stock,  by  indorsement  of  the  power  of  attorney  to  transfer 
und  delivery,  and  with  notice  to  the  company,  possesses  a 
right  superior  to  that  of  a  subsequent  attaching  creditor, 
although  a  valid  by-law  be  embodied  in  the  certificate  that 
the  stock  is  only  transferable  on  the  books  of  the  company 
at  its  office  upon  surrender  of  the  certificate,  there  being  no 
provision  in  the  charter.1  Even  with  such  provision  in  the 
charier,  the  equity  of  the  bona  fide  holder  advancing  money 
thereon  is  preferred  to  that  of  a  subsequent  attaching  cred- 
itor, whether  with  or  without  notice.*  Stock  of  a  national 
bank  was  held  in  trust,  the  certificate  being  indorsed  abso- 
lutely to  the  real  owner.  The  trustee  continued  to  collect 
the  dividends,  paying  them  over  to  the  real  owner,  and  no 
transfer  was  made  on  the  books  of  the  company.  An  at- 
tempt was  made  to  subject  the  stock  to  execution  by  a 
judgment  creditor  of  the  bare  trustee,  but  was  not  supported, 
although  the  bank  and  the  creditor  were  without  notice  of 
the  trust.* 

§  294.  PLEDGES  OF  STOCK,  WITHOUT  TRANSFER,  SUP- 
PORTED AS  AGAINST  CREDITORS. — A  certificate  of  stock 
transferable  according  to  its  terms  only  by  appearance  in 
person  or  by  attorney  at  the  place  mentioned  therein,  was 
indorsed  in  blank  by  the  legal  owner,  and  delivered  to  a 
third  person  who  pledged  the  same  to  a  bank  as  collateral 
security  for  a  loan.  The  owner  having  deceased,  a  transfer 
of  such  certificate  was  made  upon  a  subsequent  filling  up  of 
the  blank  indorsement  by  the  pledgee.  As  against  an  attach- 
ment of  the  shares  by  a  creditor  of  the  estate,  the  claims  of 
the  pledgee  were  preferred.4  Notice  of  a  pledgee's  rights 

1  State  Ins.  Co.  v.  Gcnnctt,  2  Md.  supra;  Farmers'  Bank  v.  Iglehart, 

Ch.  100;  Stebbins  v.  Phoenix  Fire  6  Gill,  50. 

Ins.  Co.  3  Paige,  361 ;  United  States  *  Sibley    v,    Quinsigamond     Nat. 

c.  Vaughan,  8  Binii.  394.  Bank,  133  Mass.  515. 

*  Duke  ».  Cahawba  Navigation  Co.  *  Fraser  ®.  Charleston,  11  S.  C.  486. 
10  Ala.  82;  State  Ins.  Co.  v.  Geunett, 


388          QUASI -NEGOTIABLE   COLLATERAL   SECURITIES. 

•will  defeat  a  levy  by  a  creditor.  A  certificate  of  stock  was 
pledged  to  an  accommodation  indorse!  as  collateral  with  a 
blank  power  of  attorney  for  making  u  the  proper  transfer  on 
the  books  of  the  company."  The  indorser  was  obliged  to 
pa}T  the  note.  Another  creditor  of  the  accommodated 
part}*  levied  upon  ilie  btoik  before  transfer  upon  the  books 
of  the  company,  but  being  chargeable  with  notice  of  the 
pledge,  acquired  no  rights  as  against  the  pledgee.1  So, 
where  a  creditor,  upon  his  levy  and  execution,  obtained  a' 
sale  of  shares  of  stock,  the  purchaser  at  the  execution  sale 
being  chargeable  with  notice  that  the  certificates  were  held 
by  a  pledgee  for  value,  in  good  faith,  properly  indorsed,  a 
court  of  equity  protected  the  hitter's  title  to  the  stock. 
The  company  had  issued  a  new  certificate  to  the  purchaser 
at  the  execution  sale,  but  the  rights  of  the  pledgee-4;o  a  trans- 
fer could  not  be  affected  by  an  unauthorized  act  of  the  com- 
pany.9 

The  pledgee  of  shares  of  stock  in  a  corporation  having 
the  legal  title  and  possession  by  indorsement  of  the 
certificates,  has  a  lien  superior  to  that  of  a  levy  under  an 
execution  ;  and  a  purchaser  at  a  sheriff's  sale,  under  such 
levy,  acquires  no  title,  to  the  shares.3  Nor  can  executions 
and  attachments  be  levied  on  shares  of  stock  in  cases  where 
the  debtor  has  only  an  equitable  right,  or  is  not  the  legal 
possessor  of  the  legal  title,  or  has  regularly  indorsed  his 
interest  therein.4  In  Connecticut,  where  transfer  of  shares 


1  Cbeever  n.  Meyer.  52  Vt  66.   One  as  to  the  ninety  shares  were  sustained 

hundred     shares     of     st<,ck    were  against  botli  the  company  and  crcd- 

pledged  as  collateral  security,  with  itor.    Warren    v.   Brandon   Manuf. 

full  power  of  transfer  indorsed,  but  Co.  reported  in  note  to  Cheevcr  v. 

before  transfer  ten  of  the  shares  were  Meyer,  supra. 

attached     by    a    creditor     of    the  J  Rogers  v  Stevens,  8  N.J.Eq.  167. 
plcdgor.  The  company  then  refused  3  Manns  0.1'rockvillc  Nnt.Bank,78 
to  transfer  any  of  the  shares  to  the  Ind.  24:J;  Nahring  v.  Bank  of  Mo- 
name  of  the  pledgee.     Subsequently  bile,  58  Ala.  204. 
the  same  creditor,  with  notice  of  the  4  Van  Norman  r.Jackson,  45  Mich, 
pledge,     attached      the    remaining  204. 
ninety  shares.   The  pledgee's  rights 


THE  PLEDGEE'S  EIGHTS.  389 

of  stock  upon  the  books  of  the  company  is  required  by  stat- 
ute in  order  to  pass  the  legal  title  as  against  third  persons, 
so  that,  until  transfer,  the  pledgee  holds  but  an  equitable 
title  to  the  collateral  stocks,  the  rule  is  modified  so  that  the 
same  considerations  which  excuse  a  failure  to  take  possession 
of  personal  property  excuse  a  failure  to  perfect  the  transfer 
of  stock.  The  equity  of  the  assignee  of  such  certificates  of 
stock  if  prior  in  time  to  that  of  the  attaching  creditor,  pre- 
vails, where  he  has  done  all  that  the  law  required,  and  all 
that  it  is  possible  for  him  to  do  in  taking  possession  of  the 
property.1 

§  295.  THE  CREDITOR'S  LIEN,  AS  AGAINST  PLEDGEE, 
UNDER  STATUTORY  ENACTMENTS. — In  states  where  statutory 
provisions  requiring  transfer  on  the  books  of  the  company 
to  complete  the  legal  title  to  shares  of  stock  are  supple- 
mented by  other  enactments  authorizing  the  issue  of  legal 
process  against  such  stock,  as  being  the  property  of  the 
person  in  whose  name  it  stands  on  the  books  of  the  company, 
the  lien  of  the  creditor  is  enforced.  The  failure  of  the 
pledgee,  receiving  the  certificate  with  power  of  attorney,  to 
make  such  transfer,  defeats  his  claim  as  against  such  creditor, 
although  the  act  of  pledge  be  prior  in  point  of  time  to  the 
service  of  process.  The  creditor  is  authorized  to  rely  upon 
the  statements  of  ownership  found  in  the  stock  books  of  the 
company.2  Under  this  view  it  is  insisted  that  if  the  indorse- 
ment and  delivery  of  a  certificate  of  stock  to  the  pledgee  be 
alone  sufficient  to  defeat  the  claims  of  creditors  of  the 

1  Colt  v.  Ives,  31  Conn.  25.  People's  Bank  t.  Gridley,  91  Ib.  457; 

8  Fisher  v.  Essex  Bank,  5  Gray,  Pir.kerton  v.   Manchester  Railroad 

373;  Blanchard  v.  Dedham  Gas  Co.  Co.  42  N.  H.  424;  Pittsburgh  Rail- 

12  Gray,  213;  Oxford  Turnpike  Co.  road  Co.  v.  Clarke,  29  Pa.  St.  146; 

v.  Bunnell,  6  Conn.  558;  Buttons.  Brown  v.  Kneeland,    5    Biss.  181; 

Connecticut  Bank,  13  Ib.  498;  Ship-  Williams   v.    Mechanics'    Bank,    5 

man  v.  Etna  Ins.    Co.  29  Ib.  251;  Blatchf.  59;  Heath  v.  Erie  Railroad 

Agricultural  Bank  n.  Burr,  24  Me.  Co.  8    Ib.  347;  Bowden  v.  Farmers' 

256;   Skohegan  Bank  v.  Cutter,  49  &  M.  Bank,  1  Hughes,  307. 
Me.  315;  People  t>.  Devin,  17  111.  86; 


390 


QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 


pledger,  the  provisions  of  such  statutes  would  be  deprived 
of  much  of  their  practical  utility,  and  the  new  certificate, 
the  issuance  of  which  to  the  purchaser  at  the  judicial  sale, 
is  generally  provided  for  in  such  statutes,  would  be  ;i 
nullity  and  of  no  avail.1  The  bona  fide  purchaser  at  a 
sale  made  under  such  legal  process,  takes  the  legal  title  to 
such  shares  of  stock  as  against  the  pledgee,  holding  the 
certificate  by  indorsement  and  delivery,  but  without  a 
transfer  on  the  books  of  the  company  as  required  by  such 
statutory  provisions.*  Nor  will  a  court  of  equity  restrain  a 
sale  of  the  remaining  interest  of  a  pledger  of  shares  of  stock 
levied  upon  under  attachment  process  instituted  by  a  creditor, 
where  a  pledgee  of  certificates  representing  such  shares 
although  holding  them  under  indorsement  of  the  power  of 
attorney  to  transfer,  had  neglected  to  comply  with  statutory 
provisions.  The  duty  of  the  pledgor  was  to  attend  at  the 
sale  and  give  notice  of  his  interest  therein.8 


1  People's  Bank  «.  Gridley,  91  111. 
457. 

1  Agricultural  Bank  e.  Burr.  24 
Maine,  263 ;  Slripman  v.  Etna  Ins.  Co. 
29  Conn.  253;  Strout  v.  Natoma  Co.  9 
Cal.  78;  Fisher  ®.  Essex  Bank,  5 
Gray,  373;  Cady  v.  Potter,  55  Barb. 
467;  Sabin  v.  Bank  of  Woodstock, 


21  Vt.  353;  Winter  v.  Belmont  Min- 
ing Co.  53  Cal.  431 ;  People  v.  El- 
more,  35  Ib.  655;  Naglee  v.  Pacific 
Wharf  Co.  20  Ib.  533;  Weston  v. 
Bear  Ridge  etc.  Co.  6  Ib.  425. 

8  Farmers'  Bank  v.  Wilson,  58  Cal. 
600. 


STOCK   CERTIFICATES  AS   COLLATERAL.  391 


CHAPTER  XXX. 

STOCK  CERTIFICATES  AS  COLLATERAL. 

§296.  The  use  of  stock  certificates  as  collateral  security. 

297.  The  pledge  of  stock  certificates,  by  trustees. 

298.  The  pledge  of  stock  certificates  showing  a  trust. 

299.  The  rule  as  to  notice  of  trust. 

•300.  The  use  of  "trustee"  in  mining  stock  certificates. 

801.  The  executor's  right  to  pledge  stock. 

302.  The  executor's  pledge  of  stock  for  his  own  debts. 

303.  Pledges  of  stock  by  and  to  banks  and  other  corporations. 

304.  National  banks  as  pledgees  of  stocks. 

305.  Pledges  of  stock  by  married  women  and  minors. 

306.  The  stockbroker,  holding  stocks,  margins,  and  securities,  a  pledgee. 

307.  The  stockbroker,  holding  stocks  and  margins,  not  a  pledgee  in 

Massachusetts. 

§  296.  THE  USE  OF  STOCK  CERTIFICATES  AS  COL- 
LATERAL SECURITY. — The  use  of  certificates  of  stock  as 
collateral  security  by  persons  holding  the  same  in  a  fidu- 
ciary character,  for  advances  or  discounts  of  paper 
obtained  at  banks,  is  generally  approved,  where  the  trans- 
action of  loan  upon  the  part  of  the  lender  is  bona  fide, 
without  notice  of  any  trust  or  other  equities,  and  the 
certificates  are  received  indorsed  so  as  to  pass  the  legal 
title.  No  rights  can  be  acquired  under  such  pledges  of 
stock  certificates  where  a  trust  is  shown  upon  the  face 
thereof,  nor  where  from  the  circumstances  the  lender  is 
chargeable  with  knowledge  that  the  act  of  pledge  is  a  mis- 
appropriation of  securities  of  a  trust  estate  for  the  indi- 
vidual use  and  benefit  of  the  person  holding  the  title  to 
such  securities  upon  trust.  Under  such  circumstances,  the 
certificates  of  stock  may  be  recovered  by  the  cestuis  que 


892          QUASI-NEGOTIABI E  COLLATERAL  SECURITIES. 

trust,  or  others  in  their  behalf,  or  the  proceeds  thereof  may 
he  followed  and  reclaimed.  Sub-pledgees  of  slock  certifi- 
cates held  by  a  pledgee  from  trustees  or  other  like  persons, 
indorsed  in  blank,  receiving  them  in  good  faith,  upon  a 
valuable  advance  made  in  the  belief  that  the  pledgee  is  the 
owner  thereof,  and  without  notice,  may  acquire  a  good 
title  as  against  the  cestui  que  trust,  although  the  pledgee 
himself  be  chargeable  with  notice  of  fraud.  The  loan  of 
money  and  discount  of  commercial  paper,  upon  the  security 
of  certificates  of  stock  of  other  corporations,  is  a  common 
transaction  among  national  and  other  banks  and  undoubt- 
edly valid.1 

§  297.  THE  PLEDGE  OF  STOCK  CERTIFICATES  BY  TRUS- 
TEES.— A  pledge  by  a  trustee  of  an  estate  of  certificates  of 
stock  belonging  thereto,  the  certificates  showing  a  trust 
upon  their  face,  or  where  the  pledgee  is,  in  any  other  way, 
informed  or  charged  with  notice  that  the  stock  is  subject  to 
a  trust,  as  collateral  security  for  money  loaned  for  his 
individual  use,  is  a  breach  of  trust.  The  cestuis  que  trust 
are  entitled  to  follow  the  certificates  of  stock,  and  reclaim 
the  same  or  the  proceeds  thereof  where  they  have  been 
converted  into  money,  under  the  powers  given  by  such 
invalid  pledge.5  Laches  on  the  part  of  cestuis  que  trust  in 
seeking  relief  from  fraudulent  transactions  of  trustees  relative 
to  stocks  belonging  to  the  trust  estate,  will  not  defeat  their 
claims,  although  it  has  extended  over  forty-four  }-ears.8  A 

J  First  Nat.  Bank  r.  Stewart,  U.S.  S.  Persch  v.  Consolidation  Nat.  Bank, 

C.  1883  (15  C.L.N.429);  Bank  t>.  Case,  13  Phila.  157;  Prall  v.  Tilt,  28  N.  J 

99  U.  S.  628;  Duncan  v.  Jaudon,  15  Eq.  479;  Gass  v.  Hampton,  10  Ncv. 

Wall.  165;  Jaudon  v.  National  City  185;  Shropshire  Unions  Ily.  Co    v. 

Bank,   8  Blatchf.   430;  Goodwin  v.  Queen,  L.  R  7  App.  496;  Pearson  v. 

American  Nat.  Bank,  48  Conn.  530;  Scott,  L.  R.  9  Ch.  D.  198;  McLeod 

Winter  «.   Belmont  Mining  Co.  53  v.  Drummond,  17  Ves.  154. 

Cal.  428;  Carter®.   National  Bank,  *  Jaudon    v.  Nat.    City  Bank,    8 

71  Me.  448;  Baldwin  v.  Canfielcl,  20  Blatrhf.  430. 

Minn.  43;  Leitch  ».  Wells,  48  N.  Y.  » Butler  9.  Carter,  L.  R.  5  Eq.  276; 

685;  Wood's  App.  92   Pa,   St.  379;  Burrows  v.  Gore,  6  H.  L.  Cas  9U7. 


STOCK   CERTIFICATES   AS   COLLATERAL.  893 

pledge  of  stocks  of  the  estate  by  a  trustee  is  not  within  the 
ordinary  course  of  business,  as  a  trustee  presumptively 
holds  the  property  for  administration  ;  and  although  the 
consideration  be  a  present  loan,  and  the  pledgee  acts  in 
good  faith,  he  receives  such  certificates  of  stock  as  collateral 
security  at  his  peril.1  As  does  also  a  pledgee  where  such 
certificates  of  stock  are  delivered  to  secure  the  payment  of 
an  indebtedness  arising  from  an  independent  transaction 
not  connected  with  the  trust,  and  of  which  the  pledgee  is 
chargeable  with  notice.8 

No  presumption  as  against  such  cestuis  que  trust  arises 
from  the  fact  that  the  trustees  have  been  entrusted  with 
muniments  of  title,  such  as  certificates  of  stock.  Such 
possession  is  within  ordinary  and  permitted  usage.  The 
cestuis  que  trust,  by  such  delivery,  do  not  forfeit  their  title 
and  interest  in  such  certificates.3  Certificates  of  stock  in- 
dorsed with  full  power  to  transfer  and  delivered  to  A  as 
trustee,  were  fraudulently  loaned  to  B,  a  broker,  upon  cer- 
tain compensation,  to  be  used  as  collateral.  A  pledgee  of 
the  stocks  sold  them  upon  default,  but  could  not  complete 
the  legal  transfer  by  reason  of  a  notice  not  to  transfer,  and 
an  indemnity  given  by  the  cestui  que  trust  to  the  corporation. 
The  pledgee  recovered  from  the  corporation  the  value  of 
the  stock  at  the  time  of  refusal  to  transfer,  a  sum  which 
with  the  proceeds  of  other  collateral  securities  held  for  the 
same  loan,  exceeded  the  amount  of  the  principal  loan.  As 
both  the  broker  and  trustee  were  parties  to  tl:e  fraud,  the 
surplus  was  equitably  appropriated  in  mitigation  of  the 
damages  paid  by  the  corporation.4 

§  298.  THE  PLEDGE  OF  STOCK  CERTIFICATES  SHOWING  A 
TRUST. — The  word  "  trustee,"  without  more,  in  a  certificate 
of  stock  has  the  same  effect  as  to  charging  persons  dealing 

1  Duncan  v.  Jaudon.  15  Wall.  165,  s  Shropshire  Unions  Ry.  Co.  V. 

175.  Queen,  L.  R.  7  App.  496,  516. 

IPrall  v.  Tilt,  28  N.  J.  Eq.  479;  *  Persch  v.  Consolidation  Nat. 

Duncan  t.  Jaudon,  supra.  Bank,  13  Phila.  157. 


394          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

therewith  with  notice  as  if  it  were  specifically  stated  "  trustee 
for  X,"  designating  some  certain  person  or  persons.  It 
means  trustee  for  some  one  whose  name  is  undisclosed.  No 
presumption  arises  in  such  case  of  an  unnamed  cestui  que 
trust  that  a  trustee  is  authorized  to  pledge  for  his  own  debt 
the  certificates  of  stock  of  the  beneficiary  any  more  than  in 
the  case  of  pledge  of  the  like  property  of  a  cestui  que  trust 
whose  name  is  known.  In  either  case  an  implication  arises 
charging  the  pledgee  with  notice  of  the  trust.  Should  a 
pledgee  receive  such  certificates  as  collateral  security  without 
inquiry  as  to  the  purpose  of  the  loan  his  negligence  will  in 
cases  of  breach  of  trust,  defeat  his  title.1  The  pledgee  acts 
especially  at  his  peril  where  he  advances  money  without 
inquiry  upon  a  certificate  of  stock  which  shows_  upon  its 
face  the  name  of  a  cestui  que  trust.  In  such  cases  the  trans- 
fer agent  of  the  company,  upon  a  transfer  being  sought  by 
the  pledgee,  should  require  an  authority  to  transfer  inde- 
pendent of  the  warrant  of  attorney  indorsed  upon  the  cer- 
tificate itself.*  Where  a  corporation  transfers  such  stock 
upon  its  books,  issuing  a  new  certificate  to  a  bona  lide 
person  advancing  value,  without  notice,  although  there  be 
no  right  to  make  the  transfer,  the  title  of  such  innocent 
person  is  protected,  the  defrauded  cestuis  que  trust  being 
entitled  to  damages  as  against  the  corporation  for  its  wrong- 


1  Shaw  «.  Spencer,  100  Mass.  382;  v.  Hilton,  1  Curtis,  390;  Lowiy  t>. 
Fisher  v.  Brown,  104  Ib.  259;  Fowlo  Commercial  Bank,  Campbell,  310; 
v.  Ward,  113  Ib.  548;  Atkinson?)  At-  Duncan  v.  Jaudon,  15  Wall.  165; 
kinson.  90  Ib.  15;  Ashton  v.  Atlantic  Bank  of  Metropolis  v.  New  England 
Bank,  8  Allen.  217;  Field  v.  Schief-  Bank,  6  How.  212;  McLeod  v.  Drum- 
felin,  7  Johns.  (!h.  150;  Pendleton  v.  mond,  17  Ves.  152;  Fish  v.  Kemp- 
Fay,  2  Paige,  202;  Budd  v.  Monroe,  ton,  7  C.  B.  687;  Brandao  v.  Barnett. 
18  Hun,  316;  Swan  v.  Proi luce  Bank,  1  M.  &  G.  908;  6  M.  &  G.  630;  12 
24  Ib.  277;  Crocker  v.  Crocker,  31  Cl  &  Fin.  787. 
N.  Y.  507;  Baker  v.  Bliss,  39  N.  Y.  *  Duncan  v.  Jaudon,  15  Wall.  165; 
70;  Gaston  v.  American  Bank,  29  N.  Jaiulou  v.  National  City  Bank,  8 
J.  Eq  98;  Bayard  v.  Farmers'  Bank,  Blatchf.  430;  Bayard  v.  Farmers' 
52  Pa.  St.  232;  Sprague  v.  C«>checo  Bank,  52  Pa.  St.  232;  Maygood  v. 
Manf.  Co.  10  Blatchf.  173;  Carr  Railroad  Bank,  5  S.  C.  379. 


STOCK   CERTIFICATES   AS    COLLATERAL.  30o 

ful  transfer.1  A  loan  by  a  bank  void  by  reason  of  statutory 
provisions,  is  not  sufficient  to  support  a  pledge  of  stock, 
standing  on  the  books  of  the  corporation  in  the  name  of  a 
"  trustee,  "  and  used  by  such  trustee  as  collateral  security. 
The  invalidity  of  the  principal  debt  destroys  the  claim 
of  the  lender,  if  any,  upon  the  collateral  securities  given  for 
its  payment.9 

§  299.  THE  RULE  AS  TO  NOTICE  OF  TRUST. — The  rule  as 
to  the  implied  notice  resulting  from  the  use  of  the  word 
"  trustee,"  was  applied  where  an  owner  of  shares  employed 
a  stockbroker  to  borrow  money  upon  a  pledge  thereof.  The 
broker  pledged  the  shares  as  collateral  to  another  broker  for 
a  loan  of  the  sum  required  and  for  an  old  debt  of  his  own, 
giving  a  borrowed  and  received  memorandum  payable  on 
demand,  and  signing  himself  "  trustee."  The  owner,  learn- 
ing of  the  transaction,  tendered  the  amount  of  the  loan,  and 
demanded  a  return  of  the  certificate.  The  pledgee  refused 
to  recognize  his  claim,  but  subsequently  returned  sixty  out 
of  the  eighty  shares  upon  a  proportionate  payment,  the 
other  shares  having  been  sold.  A  bill  in  equity  to  redeem 
the  remaining  shares  was  brought  by  the  owner.  The  nature 
of  the  transaction  being  sufficient  of  itself  to  charge  the 
pledgee  with  knowledge  that  the  borrower  was  acting  as 
the  agent  of  an  undisclosed  principal,  no  claim  could  arise 
as  to  any  sum  beyond  the  amount  actually  authorized  and 
advanced,  the  rule  of  damages,  the  sale  of  the  shares  being 
unauthorized,  being  the  value  thereof  at  the  time  of  the  com- 
mencement of  the  suit.3  A  broker  on  the  London  Stock 
Exchange  employed  to  sell  securities  and  invest  the  pro- 
ceeds in  stocks,  but  chargeable  with  notice  that  such  secur- 
ities belonged  to  a  trust  fund,  sold  the  same,  paying  the 

1  Maygood  v.  Bank  and  Bayard  v.  Gass  v.  Hampton,  16  Ncv.  185;  Win- 
Bank,  supra.  ter  v.  Belmont  Mining  Co.  53  Cal. 

*  Albert  v.   Savings  Bank,  2  Md.  428. 

159;  Brewster®.  Simes,  42  Cal.  189;  *  Fowle  v.  Ward,  113  Mass.  548. 
Thompson  v.  Tolland,  48  Ib.  99; 


390          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

proceeds  into  his  own  account,  and  then  bought  the  stock 
as  ordered.  Before  settling  day,  the  broker  became  insolv- 
ent, and  the  stocks  were  never  delivered.  The  trustee  was 
allowed  to  recover  so  much  of  the  broker's  balance  as  repre- 
sented the  value  of  the  securities.1  A  stockbroker,  em- 
ployed by  a  solicitor  of  trustees  to  sell  stocks  on  the  ex- 
change, and  having  notice  that  such  stocks  belonged  to  a 
trust  estate,  is  not  allowed  to  apply  part  of  the  proceeds 
thereof  to  the  credit  of  the  solicitor  upon  a  personal  account.5 
A  banker  of  a  railway  company,  and  one  of  its  directors, 
was  entrusted,  under  a  business  arrangement,  with  certifi- 
cates of  stock  as  trustee.  Some  of  the  certificates  were 
used  as  collateral  security  by  him,  but  no  transfer  was  made 
by  the  pledgee.  After  his  death,  the  pledgee's  representatives 
sought  by  a  mandamus  to  compel  registration  by  the  com- 
pany, but  the  issue  of  the  writ  was  refused  upon  the  ground 
that  it  was  the  ordinary  case  of  a  trustee  abusing  his  trust, 
and  that,  receiving  only  an  equitable  mortgage  of  the  shares, 
the  pledgee  should  have  inquired  as  to  the  title  of  the 
pledger,  and  failing  so  to  do,  his  claim  would  not  be  pre- 
ferred to  that  of  the  original  cestuis  que  trust,  although  no 
trust  was  shown  upon  the  face  of  the  certificates.8 

§  800.  THE  USE  OF  "  TRUSTEE  "  IN  MINING  STOCK 
CERTIFICATES. — A  custom  prevails  in  California,  Nevada, 
and  other  mining  states,  in  connection  with  mining  stocks 
certificates,  to  issue  the  same  in  the  names  of  persons  "as 
trustees,"  without  any  trust  in  fact  existing.  The  title  to 
such  stocks  pass  by  delivery  merely.  No  presumption  arises, 
by  reason  of  the  use  of  the  words  as  "  trustee  "  on  the  face 
of  the  certificate  that  the  person  using  the  same  as  collateral 
has  not  the  legal  title  thereto,  nor  is  not  entitled  to  dispose 

1  Ex  parte  Cook,  L.  R.  4  Ch.  D.         8  Shropshire    Unions  Ry.    Co.  «. 
123;  Taylor  v.  Plummer,  3  M.  &  S.      Queen,  L.  R.  7  H.  L.  496. 
562. 

*  Pearson  c.  Scott,  L.  R.  9  Ch.  D. 
198. 


STOCK   CERTIFICATES   AS   COLLATERAL.  397 

of  the  same  as  his  own  individual  property.  Such  certifi- 
cates, so  worded,  do  not  sustain  a  charge  of  notice  of  any 
actual  trusteeship,  nor  of  the  rights  of  an  unknown  cestui 
que  trust,  as  against  a  pledgee  for  value  in  good  faith.1  An 
innocent  holder  advancing  value  without  notice,  upon  the 
faith  of  a  certificate  of  stock  of  a  mining  company 
made  to  A.  "  as  trustee,"  which  had  Leen  returned  to  the 
true  owner  by  A,  and  was  subsequently  stolen  from  him  by 
A,  and  negotiated  for  value,  was  protected  as  against  the 
real  owner,  notice  not  being  presumed  by  the  wording  of 
the  certificate,  nor  the  title  of  such  holder  for  value  affected 
thereby.* 

§  301.  THE  EXECUTOR'S  RIGHT  TO  PLEDGE  STOCKS  OF 
THE  KSTATE. — The  right  of  an  executor,  in  the  absence  of 
restrictive  provisions  in  the  will  and  testament  of  the  testator, 
to  deal  with  the  personal  assets  of  the  estate  in  his  charge, 
either  by  way  of  sale,  mortgage,  or  pledge,  for  purposes 
connected  therewith,  is  unquestioned.  The  right  includes 
the  use  as  collateral  security  of  certificates  of  stock  standing 
in  the  name  of  the  testator  for  loans  obtained  to  pay  legacies 
under  the  will.3  The  rights  of  the  pledgee,  receiving  stock 
so  pledged  in  good  faith,  are  not  affected  by  knowledge  that 
the  executor  is  dealing  with  such  assets  in  a  fiduciary 
character,  since  such  fact  is  not  of  itself  enough  to  put  him 
upon  inquiry,  nor  to  raise  a  suspicion  of  fraudulent  conduct 
on  the  part  of  the  executor.4  Knowledge  of  the  pledgee  of 

1  Brewstcr    v.  Simes,  43  Cal.  139;  McLcod  v.  Drummond  17  Ves.  154; 

Thompson  v.  Tolland,    48    Ib.   99;  Scott  v.  Tyler,  2  Dick,  712,  725;  An- 

Gass  v.  Hampton,  16  Nev.  185.  drew  v.  Wrigley,  4  Br.  Oh.  Cas.  125; 

*  Winter  ®.  Behnont    Mining  Co.  Russell    v.    Plaice,    18    Beav.    21 ; 

53  Cal.  428.  Cruikshank  v.  Duffln,  L.  R.  13  Eq. 

8  Carter  v.  National  Bank,  71  Me.  555;  Earl  Vane  v.  Rigden,  L.  R.  5 

448;  Hutching  v.  State  Bank,  12  Met.  Cli.    663.      A  contrary  view  is  an- 

423;    Ashton  v.    Atlantic    Bank,   3  nounced  in  Ford  v.  Russell,  1  Freem. 

Allen,  217;    Field    «.   Schieffelin,  7  Eq.  (Miss.)  42. 

Johns.  Ch.  150,  160;  Jaudou  t.  City  *  Prall  v.  Tilt,  28  K  J.  Eq.  479; 

Bank,   8  Blatchf.  430;  Goodwin  ®.  Bayard  v.  Farmers'  Bank.  52  Pa.  St. 

American  Nat.  Bank,  48  Conn.  550;  232;  Jaudon  v.  Bank,  8  Blatchf.  430. 


398          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

the  existence  of  valid  claims  upon  the  funds  and  securities 
of  the  estate,  will  not  discharge  his  claims.1  Nor  is  the 
pledgee  required  to  see  to  the  application  of  funds  loaned, 
nor  responsible  for  the  misappropriation  thereof,  where  he 
has  acted  in  good  faith.*  But  such  pledge  of  stocks  is  not 
supported  where  made  so  long  a  time  after  the  death  of  the 
testator  that  a  presumption  arises  that  all  debts  have  been 
paid  and  that  funds  to  be  raised  on  collateral  security  can- 
not be  required  for  the  use  of  the  estate.1 

§  302.  THE  EXECUTOR'S  PLEDGE  OF  STOCKS  FOR  HIS 
OWN  DEBTS. — An  executor,  however,  can  not  make  a  valid 
transfer  of  stocks  belonging  to  the  estate  as  collateral  se- 
curity for  his  own  debts  or  obligations,  or  to  procure  the 
discount  of  his  own  notes  at  a  bank  or  broker's  office.  In 
such  cases  the  money  being  procured  for  his  private  use, 
and  the  pledgee  chargeable  with  notice  thereof,  the  trans- 
fer of  the  stock  is  a  devastavit,  and  no  rights  can  be  ac- 
quired thereunder.4  A  pledgee  who  is  chargeable  with 
knowledge  or  has  reasonable  grounds  for  believing  that 
an  executor  intends  to  misapply  the  funds  loaned,  or  that 
an  executor  is  in  the  very  transaction  applying  such  funds 
to  his  own  private  use,  is  chargeable  to  the  persons  injured 
for  any  loss  thus  sustained.'  Where  such  misappropria- 

1  Leitch  v.  Wells.  48  N  Y.  585.  shaw,  11  Hare,  93;  Wilson  ».  Moore. 

*  Slinson  v.  Thornton,  56  Ga.  377;  1  M.  &  K.  337;  Miles  ».  Dumford, 

Leitch  v.  Wells,  48  N.  Y.  585;  Wood  2  Sim.  N.  S.  233. 

e.  Smith,  92  Pa.  St.  379;  Goodwins.  •  Lowry     v.    Commercial     Bank, 

Bank,  48  Conn.  5.">0.  Campbell,  310  330;  Yerger®.  Jones, 

»  liellas  r>.  McCarty,  10  Watts.  73;  16  How.  30,  37;  Collinson  v.  Lister. 

Miller  «.  Egc,  8  Pa.  St   352;  Lowry  7  DeG.  M.  &  G.  633.    Certificates 

t>.  Commercial  Bank,  Campbell.  310;  showing  upon  their    face  that  they 

Collinson  v.  Lister,  7  DeG.  M.  &  J.  were  the  property  of  an  estate,  were 

634.  received    by    the  pledgees  directly 

4  Wood's  App.  92  Pa.  St.  379,  391;  from  executors,  but  as  security  fora 

Duncan  v.  Jaudon,   15  Wall.  176;  debt  owing  by  a  son  of  the  testator, 

Carter  ».  Nat.  Bank,    71   Me.  448;  who  made  no  claim  to  own  the  stock. 

Davis  v.  French,  20  Ib.  21;  Hill  v.  It  was  the    duty    of    the    pledgee 

Simpson,  7  Vcs.  152;  Haines  ».  For-  to  ascertain  whether  there  was  any 


STOCK   CERTIFICATES   AS   COLLATERAL.  399 

tion  w"as  rendered  possible  by  the  negligence  of  a  corpora- 
tion permitting  a  transfer  of  stock  by  executors,  and 
new  certificates  subsequently  passed  into  the  hands  of 
pledgees  for  value,  without  notice,  for  a  private  debt  of  the 
executors,  and  were  sold,  under  a  power  of  sale,  the  com- 
pany, by  reason  of  its  gross  negligence,  became  liable  for 
the  loss  to  the  estate  resulting  therefrom.1 

The  rules  of  equitable  estoppel  are  invoked  in  favor  of 
sub-pledgees  of  certificates  of  stock,  although  the  same 
were  originally  fraudulently  pledged  by  an  executor  for 
his  own  debt.  The  delivery  of  such  certificates  indorsed  in 
blank,  so  as  to  vest  the  legal  title  and  apparent  ownership 
in  the  pledgee,  enables  the  latter,  although  chargeable  with 
notice  of  equities,  to  convey  an  unimpeachable  title  to  a 
sub-pledgee,  receiving  the  same  in  good  faith,  for  value, 
without  notice  of  equities.  The  latter  is  entitled  to  retain 
such  collateral  securities,  even  as  against  the  defrauded 
cestuis  que  trust,  until  the  payment  of  his  bona  fide  ad- 
vances.9 

§  303.  PLEDGES  OF  STOCK  BY  AND  TO  BANKS  AND 
OTHER  CORPORATIONS. — In  the  absence  of  any  restriction 
by  statutory  enactment,  or  by  its  charter,  a  banking  com- 
pany may  loan  money,  or  discount  commercial  paper,  or 
secure  an  antecedent  debt,  upon  a  deposit  as  collateral  se- 

right  so  to  transfer  the  stock.  Their  torney  to  transfer,  and  sold  the  ccr- 
negligence  defeated  their  claim.  tificate,  under  a  right  of  sale  given 
Prall  v.  Hamill,  28  N.  J.  Eq.  66.  by  the  contract  of  'pledge,  without 
1  Hodges  v.  Planters'  Bank,  7  G.  knowing  at  any  time  that  the  slock 
&  J.  ,506;  Stewart  v.  Farmers'  Ins.  had  belonged  to  the  testator  or  had 
Co.  n:>  Md.  564;  Lowry  v.  Commcr-  been  transferred  to  the  executor, 
cial  Bank,  supra;  Davis  0.  Bank  of  The  title  of  both  pledgee  and. pur- 
England,  2  Biug.  393.  The  like  rule  chaser  were  supported,  as  against 
was  applied  where  a  certificate  of  equities  arising  under  the  will, 
stock  was  wrongfully  issued  to  exe-  Lowry  v.  Commercial  Bank,  Camp- 
cutors  by  the  corporation  sought  to  bell,  310. 

be  charged  in  the  action,  and  a  bank  s  Wood's  App.   92    Pa.    St.   379; 

loaned  money  thereon  as  collateral  Prall  v.  Tilt,  28  N.  J.  Eq.  480. 
security,  receiving  full  power  of  at- 


400          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

curity  of  certificates  of  stock  issued  by  other  corporations. 
It  is  in  fact  an  ordinary  mode  of  loaning  money,  the  security 
being  easily  available  upon  default  in  the  principal  prom- 
ise.1 A  banking  company,  holding  such  certificates  of 
stock,  with  power  of  attorney  to  transfer  indorsed,  obtain- 
ing for  its  better  protection  transfer  upon  the  books  of  the 
company,  and  receiving  a  new  certificate  in  its  own  name, 
becomes  a  stockholder  thereof,  subject  to  like  liabilities  as 
any  other  stockholder.  Where  this  has  been  done,  and 
dividends  accruing  upon  such  stock  also  received,  a  bank- 
ing company  or  any  other  corporation  is  estopped  as  against 
third  persons,  to  deny  its  liability  as  stockholder,  the  com- 
pany issuing  the  shares  having  gone  into  liquidation.1 
The  defense  of  ultra  vires  is  not  permitted  to  a  corporation 
as -against  an  innocent  holder  for  value  of  negotiable  instru- 
ments, receiving  the  same  before  maturity,  without  notice, 
issued  in  payment  of  shares  of  stock  of  another  company. 
The  note  being  an  independent  transaction,  recovery  may 
be  had  thereon.8  Even  where  a  corporation  is  prohibited 
by  charter  or  statutory  provisions,  from  loaning  money  on 
such  collaterals,  a  pledge  of  certificates  of  stock  of  another 
corporation  is  rather  voidable  than  vcid.  The  rights  and 
interests  of  third  persons  accruing  thereunder  are  not  de- 
feated by  any  inequitable  defense  of  ultra  vires.4  The 
pledger  himself,  having  received  the  loan,  is  not  allowed  to 
set  up  the  alleged  invalid  character  thereof  to  defeat  an 
action  upon  the  note  given  for  the  advance.*  The  title  of 
the  pledgee  of  stocks  is  not  defeated  where  he  holds  the 

1  National  Bank  v.  Case,  99  U.  S.  Penn  St.  204.    The  same  rule  was 

628;    Shoemaker   v.    National    Me-  applied  in  Oil  Creek  etc.  Hy   Co.  v. 

chanics' Bank,   2  Abbott,  416;  Day-  Penu.    Transportation    Co.   83    Pa. 

ton  Nat.  Bank  v.  National  Bank,  37  bt.  160;  Northampton  Co.'s  App.  30 

Ohio  St.  208;  National  Bank  a.  Hall,  Ib.  605;  Lcatapies  v.  Ingraham,  5  Ib. 

18  Hun,  176;  Baldwin  v.   Canfield,  81. 

26  Minn.  43.  4  Sistarc  n.  Best,  88  N.  Y.  527. 

»  In  re  Asiatic  Bank  Co.  L.  R.  7  '  Mott  v.  United  States  Trust  Co. 

Eq.  91;  s.  c.  4  Ch  22.  19  Barb.  568. 

»  Wright  v.  Antwerp  Pipe  Co.  101 


STOCK   CERTIFICATES   AS  COLLATERAL.  401 

same    under    a   contract   containing   a   stipulation   of  the 
invalidity  of  which  he  has  no  knowledge  or  notice.1 

A  corporation  may  issue  its  own  unsubscribed  and  unis- 
sued shares  of  stock  as  collateral  security  for  advances 
already  made  and  made  at  the  time,  or  they  may  be  held  by 
a  third  person  in  trust  for  that  purpose.  Where  statutes 
have  been  enacted  relieving  pledgees  of  stock  from  respon- 
sibility as  stockholders,  the  fact  that  such  shares  of  stock 
are  held  as  collateral  security  is  sufficient  to  bring  the 
pledgees  thereof  within  the  rule.9  Pledges  to  a  bank  of 
its  own  stock  were  sustained  as  against  a  statutory  provision 
that  no  bank  should  make  any  loan  or  discount  on  a  pledge 
of  its  own  stock,  where  the  loans  were  made  on  the  personal 
security  of  the  stockholder,  who  had  previously  pledged  his 
stock  to  the  bank  for  his  "future  indebtedness  and  liabil- 
ity."' 

§  304.  NATIONAL  BANKS  AS  PLEDGEES  OP  STOCKS. — 
A  national  bank  may  take  certificates  of  stock  issued  by 
another  corporation,  with  a  power  of  attorney  indorsed 
thereon,  as  collateral  security  for  a  loan  or  discount  of  com- 
mercial paper.  No  provision  of  the  National  Bank  Act  pro- 
hibits such  transactions.4  Nor  is  the  rule  affected  by  the 
fact  that  real  estate  constitutes  the  whole  property  of  a 
corporation  issuing  such  shares  of  stock  used  as  collateral 
security.4  The  National  Bank  Act,  however,  directly  pro- 
hibits the  making  of  present  loans  or  discount  of  commercial 
paper,  upon  a  pledge  of  certificates  of  stock  issued  by  itself, 
although  where  the  receipt  of  such  securities  is  to  prevent 
loss  on  a  debt  previously  contracted,  the  act  of  pledge  is 

1  Curtis  v.  Leavitt,  15  N.  Y.  9.  3  VanSands  v.  Middlesex  Co.  Bank, 

s  Burgess  v.  Seligman,  107  U.  8.  26  Conn.  144,  159  ;   Conant  v.   Se- 

Rep.  20;  Matthews  v.  Albert,  24  Md.  neca  Bank,  1  Ohio  St.  298. 

527.  Such  a  pledge,  the  shares  being  *  National  Bank  v.  Case,  99  U.  S. 

placed  in  the  name  of  a  trustee,  was  628. 

supported  in  re  City  Terminus  Hotel  6  Baldwin  v.   Canfleld,  26    Minn. 

Co.  L.  R.  14  Eq.  10.     Contra:  Brew-  43,62. 

ster  v.  Hartley,  37  Cal.  15. 
26 


402 


QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


valid.1  A  borrower  of  money  from  a  national  bank  who 
deposits  certificates  of  shares  of  stock  issued  by  such  bank 
as  collateral  security,  is  chargeable  with  knowledge  of  the 
provisions  of  the  National  Bank  Act.  His  claim  to  recover 
the  stock,  or  the  proceeds  of  its  sale,  while  still  retaining  the 
avails  of  the  loan,  is  not  favored.  Both  parties  being  equally 
affected  by  the  illegality  of  the  transaction,  under  the  pro- 
hibitions of  the  Bank  Act,  the  aid  of  courts  will  not  be  given 
10  either,  especially  where  the  contract  of  pledge  has  been 
executed,  the  stock  sold,  and  the  proceeds  applied  in  pay- 
ment of  the  debt.8 


'Bank®.  Lanier,  11  Wall.  369; 
Johnston  v.  Laflin,  103  U.  S.  800.  U. 
S.  Rev.  Stats.  1878,  §5201,  provides 
that  "  no  association  shall  make  any 
loan  or  discount  on  tl.c  security  of 
the  shares  of  its  own  capital  stock, 
nor  be  the  purchaser  or  holder  of  any 
such  shares,  unless  such  security  or 
purchase  shall  be  necessary  to  pre- 
vent loss  upon  a  debt  previously  con- 
tracted in  good  faith,  and  stock  so 
purchased  or  acquired  shall,  within 
six  months  from  the  time  of  its  pur- 
chase, be  sold  or  disposed  of  at  pub- 
lic or  private  sale,  or  in  default 
thereof  a  receiver  may  be  appointed 
to  close  up  the  business  of  the  asso- 
ciation." The  rule  is  applied  to 
other  banking  corporations.  State 
of  Ohio  t>.  Franklin  Bank,  10  Ohio, 
91;  Taylor  ».  Miami  Exp.  Co.  6  Ham. 
176;  Farmers'  Bank  ».  Champlain 
Trans.  Co.  18  Vt.  131;  Marine  Bank 
v.  Biays,  4  H.  &  J.  338;  Franklin 
Bank  v.  Commercial  Bank,  36  Ohio 
St.  350.  A  pledge  to  a  corporation 
of  its  own  shares  of  stock  was  sus- 
tained in  Middlesex  Bank  v.  Minot, 
4  Met.  325;  ex  parte  Holmes,  5 
Cow.  426;  Butterworth  v.  Kennedy, 
SBosw.  143. 


'First  National  Bank  of  Zenia  v. 
Stewart,  107  U.  S.  (17  Otto)  676. 
The  Supreme  Court  considering 
§5-201  of  Rev.  Stats.  1878,  say 
(Field,  Jus.):  "While  this  section 
in  terms  prohibits  a  banking  asso- 
ciation from  making  a  loan  upon 
the  security  of  shares  of  its  own 
stock,  it  imposes  no  penalty,  either 
upon  the  bank  or  borrower,  if  a  loan 
upon  such  security  be  made.  If, 
therefore,  the  prohibition  can  be 
urged  against  the  validity  of  the 
transaction  by  any  one  except  the 
Government,  it  can  only  be  done  be- 
fore the  contract  is  executed,  while 
the  security  is  still  subsisting  in  the 
hands  of  the  bank.  It  can  then,  if 
at  all,  be  invoked  to  restrain  or  de- 
feat the  enforcement  of  the  security. 
When  the  contract  has  been  executed, 
the  security  sold,  and  the  proceeds 
applied  to  the  payment  of  the  debt, 
the  courts  will  not  interfere  with  the 
matter.  Both  bank  and  borrower 
are  in  such  case  equally  the  subjects 
of  legal  censure,  and  they  will  be  left 
by  the  courts  where  they  have 
placed  themselves. 

There  is  another  view  of  this  case. 
The  deceased  authorized  the  bank, 


STOCK  CERTIFICATES  AS  COLLATERAL. 

§305.  PLEDGES  OF  STOCK  BY  MARRIED  WOMEN  AND 
MINORS. — Pledges  of  stock  by  indorsement  and  delivery  of 
the  certificate,  made  by  married  women  are  supported, 
although  the  loan  to  secure  which  such  shares  have  been 
deposited  as  collateral  security,  be  for  the  benefit  of  the 
husband,  and  not  applied  for  necessaries,  nor  the  improve- 
ment of  the  separate  estate  of  the  wife.'  A  pledge  of  cer- 
tificates of  stock  by  a  married  woman,  as  "  security  for  the 
payment  of  any  demands  you  may  from  time  to  time  have 
or  hold  against  "  her  husband,  will  cover  future  advances 
made  bona  fide."  A  pledgee  for  value,  upon  default,  was 
proceeding  to  sell  certificates  of  stock  pledged  by  a  married 
woman,  who  filed  a  bill  in  equity  to  restrain  the  sale  and 
compel  return  of  the  certificate,  but  made  no  payment  or 
tender  of  the  debt.  She  was  in  fact  unable  to  restore  the 
consideration  for  which  the  pledge  was  given.  The  fraud 
of  permitting  her,  under  such  circumstances,  to  recover 
from  a  bona  fide  pledgee  the  substantial  security  on  which 
he  had  parted  with  his  money,  is  not  permitted  or  tolerated 
in  a  court  of  equity.1 

The  disabilities  attaching  to  persons  under  age,  renders 
pledges  of  stocks  as  collateral  security  for  illegal  specula- 
tions upon  margins  by  stockbrokers  absolutely  void.  Such 
deposits  of  stocks  and  margins  by  a  minor  to  secure  a  stock- 
broker against  losses  on  account  of  proposed  options  and 


in  a  certain  contingency,  to  sell  his  was  an  offset  to  the  proceeds.    In 

shares.     Supposing  it  was  unlawful  either  view  the  administrators  can 

for  the  bank  to  take  those  shares  as  not  recover." 

security  for  a  loan,  it  was  not  unlaw-  '  Merchants'    National    Bank    v. 

ful  to  authorize  the  bank  to  sell  Hall,  83  N.  Y.  333;  Dando's  App. 

them    when    the    contingency    oc-  94  Pa.  St.  76. 

curred.    The  shares  being  sold  pur-  *  Merchants'    National    Bank    v. 

suant  to  the  authority,  the  proceeds  Hall,  supra. 

would  be  in  the  bank  as  his  property.  3  Dando's  App.  94  Pa.  St.  76;  Sel- 

The  administrators,  indeed,   affirm  den   v.   National   Bank,  69  Ib.  424' 

the  validity  of  that  sale  by  suing  for  Fryer  v.  Rishcll,  84  Ib.  521;  Iliiiney 

the  proceeds.     As  against  the  de-  v.  Phillips,.  50  Ib.  382. 

ceased,  however,  the  money  loaned 


404          QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

purchases  and  sales,  are  not  supported,  although  the  broker 
be  unaware  of  the  minority  of  his  customer.  A  minor  is 
allowed  upon  coming  of  age,  to  avoid  such  contracts,  and 
may  recover  his  stock  securities  and  money  advanced 
as  margins,  even  without  returning  the  consideration 
received,  if  any.1  The  same  rule  applies  to  contracts  made 
by  minors  under  which  deposits  of  money  are  made  with  a 
broker  for  the  purchase  of  stocks  upon  illegal  contracts. 
Where  such  stocks  are  never  delivered,  and  a  pretended 
sale  is  made  without  notice  or  demand  of  payment,  under  a 
power  to  sell  at  public  or  private  sale,  the  minor  may  repu- 
diate the  contract  and  recover  his  deposit  of  collaterals.9 

§  306.  THE  STOCKBROKER,  HOLDING  STOCKS,  MARGINS, 
AND  SECURITIES,  A  PLEDGEE. — The  contract  of  the  stock- 
broker and  his  customer  where,  upon  an  order  from  the  cus- 
tomer, and  the  deposit  of  collateral  securities  and  margins,  or 
margins  alone,  the  broker  purchases  stocks  for  the  customer, 
advancing  a  large  proportion  of  the  funds  necessary  there- 
for, upon  an  agreement  to  carry  the  same,  the  customer 
having  the  right  at  any  time  during  the  option,  upon 
payment  of  the  advances  of  the  broker,  interest  and 
commissions,  to  demand  a  delivery  of  the  stock,  or  to 
require  its  sale,  and  the  broker  having  a  power  of  sale 
upon  default  in  furnishing  margins  as  agreed,  and  rea- 
sonable notice  of  sale,  or  upon  failure,  at  the  expiration 
of  the  option,  to  pay  the  funds  advanced  to  purchase 
such  stocks  held  as  security,  is  within  the  definition  of  a 
pledge.  If  the  purchase  of  stock  by  a  broker  for  a  cus- 
tomer were  completed  by  an  immediate  delivery  of  the 
stock  to  the  latter,  to  be  followed  by  a  re-delivery  thereof 
to  the  broker  as  collateral  to  secure  the  payment  of  his 
advances,  commissions,  and  interest,  there  would  be  a  com- 
pliance with  the  technicalities  of  an  act  of  pledge.  The 

1  Ruchizky  t>.  DcHaven,  97  Pa.  St.         *  Heatli  ».  Mabonc,  24  Hun,  341. 
202. 


STOCK  CERTIFICATES   AS   COLLATERAL.  405 

intention  of  the  parties  to  the  contract  may,  however,  be 
presumed  from  the  retention  of  the  shares  by  the  broker  in 
his  character  as  pledgee,  as  showing  a  waiver  of  the  form  of 
delivery  and  re-delivery.1 

This  view  of  the  relations  of  the  broker  and  customer  is 
supported  by  the  terms  of  the  usual  contract  between  the 
parties.  The  broker  agrees:  1.  At  once  to  buy  for  the 
customer  the  stocks  he  desires.  2.  To  advance  all  the 
money  required  for  the  purchase  beyond  the  ten  per  cent., 
or  other  margin  furnished  by  the  customer.  3.  To  carry  or 
hold  such  stocks  for  the  benefit  of  the  customer  so  long  as 
the  margin  of  ten  per  cent.,  or  other  margin,  is  kept  good, 
or  until  notice  is  given  by  either  party  that  the  transaction 
must  be  closed — an  appreciation  in  the  value  of  the  stocks 
being  the  gain  of  the  customer  and  not  of  the  broker.  4.  At 
all  times  to  have  in  his  name,  or  under  his  control  and  ready 
for  delivery  the  shares  purchased,  or  an  equal  amount  of 
other  shares  of  the  same  stock.  5.  To  deliver  such  shares 
to  the  customer  when  required  by  him,  upon  the  receipt  of 
the  advance  and  commissions  accruing  to  the  broker.  6.  To 
sell  such  shares  upon  the  order  of  the  customer  upon  the 
payment  of  the  like  sums  to  him,  and  account  to  the  cus- 
tomer for  the  proceeds  of  such  sale.  The  undertaking  of 
the  customer  is:  1.  To  pay  a  certain  margin  on  the  current 
market  value  of  the  shares.  2.  To  keep  good  such  margin 
according  to  the  fluctuations  of  the  market.  3.  To  take  the 
shaves  so  purchased  on  his  order  whenever  required  by  the 
broker,  and  to  pay  the  diffierence  between  the  percentage 

1  Baker  v.  Drake,    53  N.  Y.  211;  Prune,  4  Johns.  Ch.  490;  s.  c.  7  Ib. 

8.  c.  66  Ib.  518;  Stenlon  t>.  Jerome,  69;  Wynkoop  v.  Leal,  64  Pa.  St.  361; 

54  Ib.  480;  Lawrence  o.  Maxwell,  53  Esser    v.    Linderman,    71    Ib.    76; 

Ib.  19;  Hortoa  «.  Morgan,    19  Ib.  Diller  e.  Brubaker,  52  Ib.  498;  Gil- 

170;  Markham®.  Jaudon,  41  Ib.  235;  pin  v.  Ho  well,    5  Ib.   41;  Child  v. 

Morgan  v.  Jaudon,  40  How.  Pr.  366;  Hogg,  41  Cal.  519;  Hatch  v.  Doug- 

Gruman  c.  Smith,  81  N.  Y.  25;  Me-  lass,   48  Conn.  116;  Maryland  Fire 

Neil  v.  Tenth  Nat.  Bank.  40  Barb.  Ins.  Co.   «.  Dalrymplc,  25  Md.  242; 

59;    s.  c.  46  N.  Y.    325;  Capron  0.  Baltimore  Marine  Ins.    Co.  v.  Dal- 

Thompsou,  86  N.  Y.  418;  Nourse  v.  rymple,  25  Ib.  269. 


406  QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

advanced  by  him  and  the    amount   paid   therefor  !>v    the 
broker.1 

§  307.  THE  STOCKBROKER  HOLDING  MARGINS  NOT  A 
PLEDGEE,  IN  MASSACHUSETTS. — In  Massachusetts,  the 
transaction  in  which  a  broker  advances  money  to  purchase 
certificates  of  stock  for  a  customer,  the  rule  being  the  same 
where  the  customer  advances  money  as  a  margin  upon 
giving  an  order  to  buy,  and  to  hold  and  carry  such  stocks 
for  the  customer,  upon  an  agreement  that  the  latter  shall 
pay  interest  on  the  sums  advanced,  and  in  case  the  value  of 
the  stock  depreciates,  keep  his  margins  good  to  a  n-rtam 
percentage  of  the  current  market  value,  is  regarded  as  an 
executory  or  conditional  contract,  to  deliver  so  many  shares 
on  the  payment  of  so  much  money.  The  broker  mainly 
furnishing  the  funds  to  purchase  the  stock  is  entitled, 
where  he  holds,  as  is  generally  the  custom,  such  certificate 
of  stock  in  his  own  name,  having  the  legal  title  and  posses- 
sion, so  long  as  no  payment  or  tender  of  his  advances, 
interest  and  charges  is  made,  to  use  such  stock  as  collateral 
for  his  own  obligation.  Nor  does  he  become  by  such  pledge 
liable  to  an  action  by  his  customer  for  conversion,  as  the 
latter  has  no  right  to  its  possession  until  payment.*  The 
broker  may  sell  the  stock,  without  notice  to  his  customer, 
where  purchased  chiefly  with  his  own  money,  and  while 
carrying  the  same  a  depreciation  occurs  in  its  value,  and 
the  customer  fails  to  furnish  further  margins  upon 
demand.8 

1  Marklmm  v.  Jaudon,  41  N.  Y.          »Covell  v.  Loud,  135  Mass.  41. 
239  (Hunt,  C.  J.) 
»  Wood  v.  Hayes,  15  Gray,  375. 


ILLEGAL  AND  TORTIOU3   PLEDGES.  407 


CHPTER  XXXI. 

PLEDGE   OF  FORGED,  FICTITIOUS,   AND  MISAPPROPRIATED 

STOCKS. 

§308.  The  transfer  of  certificates  of  stock,  under  forged  indorsements. 

309.  The  rights  and  remedies  of  the  real  owner. 

310.  Rights  of  innocent  holder,  for  value,  of  new  certificate. 

311.  The  title  acquired  under  fraudulent  issues  of  fictitious  stock. 

312.  Estoppel  in  pais,  as  applied  against  corporations. 

313  Equitable  estoppel,  as  enforced  in  National  Bank  v.  Watsontown 
Bank. 

314.  Equitable  estoppel,  as  applied  to  the  terms  of  certificates. 

315.  Estoppel  of  real  owner,  by  blank  indorsement  of  certificates. 

316.  The  misappropriation  of  stock  certificates  by  brokers  and  agents. 

317.  Essential  conditions  of  pledge  under  misappropriation  and  fraud. 

318.  Measure  of  damages  in  cases  of  forgery  and  spurious  stock. 

§  308.  THE  TRANSFER  OF  CERTIFICATES  OF  STOCK 
UNDER  FORGED  INDORSEMENTS. — No  rights  can  be  acquired 
directly  under  an  act  of  forgery.  Where  a  valid  certificate 
of  stock  has  been  transferred  by  one  not  its  owner,  but 
having  possession  thereof,  by  the  forgery  of  the  name  of  the 
owner  to  the  blank  power  of  attorney  to  transfer,  the  per- 
son receiving  such  transfer,  or  acquiring  any  claim  upon 
such  stock,  by  or  through  such  forgery,  acquires  no  title  or 
right  therein  as  against  any  one  lawfully  claiming  the  same. 
It  is  immaterial  that  the  corporation  has  assumed  in  good 
faith  to  issue  anew  certificate  upon  the -forged  indorsement 
of  the  old,  so  long  as  the  new  certificate  remains  in  the 
hands  of  the  person  obtaining  the  transfer.  The  rule  is 
different,  however,  where  such  new  certificate  of  stock  has 
passed  into  the  hands  of  a  bona  fide  holder,  advancing 
value  upon  the  credit  of  the  representations  contained 


408          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

therein,  without  notice  of  equities.  The  rules  of  equitable 
estoppel  are  invoked  in  favor  of  such  innocent  liohler  for 
value,  as  against  the  corporation  issuing  such  certificate, 
although  it  may  be  required  to  issue  other  shares  of  stock 
to  the  real  owner,  or  pay  him  the  value  of  the  stock  wrong- 
fully transferred.  Iso  estoppel  arises  as  against  the  com- 
pany, to  show  the  facts,  so  long  as  the  new  certificate 
remains  in  the  hands  of  a  pledgee  of  it,  holding  the  same; 
as  a  bare  trustee,  the  debt  for  which  the  stock  was  given  as 
collateral  security  having  been  paid.  Nor  will  the  fact  that 
the  person  so  holding  may  have  sustained  a  loss  or  missed  a 
benefit  thereby,  affect  the  refusal  to  apply  tlie  rules  of  es- 
toppel in  such  case.1  A  holder  for  value  of  the  new  certi- 
ficate chargeable  with  knowledge  of  the  forgery  or 
invalidity,  can  acquire  no  valid  title  as  against  the 
company.*  Where  a  compan}'  is  estopped  to  set  up  the  facts 
as  against  a  bona  fide  pledgee  for  value,  without  notice, 
holding  new  certificates,  and  lias  been  required  to  replace 
the  shares  or  their  value  at  the  suit  of  the  real  owner, 
it  may  bring  an  action  at  law  against  the  person  at 
whose  request  upon  the  presentation  of  the  forged  certifi- 
cates, the  new  issue  of  certificates  was  made.* 

§  309.  THE  BIGHTS  AND  REMEDIES  OP  THE  REAL 
OWNER. — An  owner  of  shares  of  stock  cannot,  where  free 
from  negligence  or  bad  faith,  be  deprived  of  them  by  a  for- 
gery of  his  name,  or  of  any  other  material  part  of  the  power 
of  attorney  to  transfer  indorsed  thereon.  If  by  reason  of 

1  Hilyard  «.  South  Sea  Co.  2  P.  Co.  44  Md.  551;  Pratt  v.  Machinists' 

Wins.  76;  Ward  v.  Central  R.R.  Co.  Nat.  Bank,  123  Mass.  110;   Denny  v. 

87  Geo.  515;  Hambleton  c.    Cent.  Lyon,   88  Pa.  St.  98;  Johnston  v. 

Ohio  Ry.  Co.  44  Md.  551,  in  which  Renton,  L.  R.  9  Eq.  181;  Cottam  v. 

case    dividends   were   paid  to  the  Eastern  Counties'  Rys.  1  Johns.  & 

pledgee  on  the  stock  after  the  forge-  H.  243;  Taylor  v.  Great  Indian  Pen- 

ry  had  been  discovered.      Simm  v.  insular  Ry.  4  DeG.  &  J.  559. 

Anglo-American  Tel.  Co.  L.  R.  5  Q.  *  Mechanics'  Nat.  Bank  v.  Field, 

B.  D.  188.  126  Mass,  345. 

*Hambleton  ».  Central  Ohio  Ry. 


ILLEGAL  AND   TOKTIOCTS   PLEDGES.  409 

such  forgery  an  apparently  legal  title  to  such  shares  of  stock 
is  vested  in  a  third  person,  and  the  company  upon  the 
presentation  of  such  forged  indorsement,  assumes  to  issue  a 
new  certificate  thereon,  the  rights  of  the  real  owner  are 
not  affected.1 

Where  new  certificates  have  been  issued  by  the  com- 
pany upon  such  forged  indorsement,  the  owner  may  proceed 
by  bill  in  equity,  praying  for  the  issue  of  new  certificates  to 
himself,  and  his  reinstatement  as  stockholder,  or  a  decree 
may  be  entered  for  the  value  of  the  stock  at  the  time  of  the 
demand,  with  dividends.4  Relief  may  be  sought  in  equity 
against  the  transferee  of  the  new  certificates,  requiring  a 
restoration  thereof,  and  leaving  the  transferee  to  his  remedy 
against  the  company.*  But,  upon  a  bill  in  equity  against 
both  a  company  and  transferees  of  the  stock,  and  decree 
that  the  company  should  issue  new  certificates  to  the  owner, 
the  rights  of  the  two  co-defendants,  as  between  themselves, 
were  not  decided.4  The  owner  has  his  action  at  law  against 
the  person  participating  in  such  unauthorized  transfer5  and 


1  Pollock  v.  Nat.  Bank,  7  N.  T.  Houston  &  T.  Ey.  Co.  53  Tex.  162; 
274;  Sewall  v.  Boston  Water  Power  Midland  Ey.  Co.  v.  Taylor,  28  Beav. 
Co.  4  Allen,  277 ;  Pratt  v.  Machinists'  287 ;  s.  c.  8  H.  L.  Cas.  751 ;  Davis  v. 
Nat.  Bank,  supra;  Telegraph  Co.  v.  Bank  of  England,  2  Bing.  393;  Dai- 
Davenport,  97  U.  S  369;  Davis  v.  ton  v.  Midland  Ey.  Co.  12  C.  B.  458; 
Bank  of  England,  2  Bing.  393,  407;  Swan  v.  N.  B.  Australian  Co.  7  H.& 
Ashby  v.  Blackwell,  2  Eden,  299;  s.  N.  603;  s.  c.  2  H.  &  C.  175;  Duncan 
c.  Ambl.  503;  Sloraan  v.  Bank  of  v.  Luntby,  2  McN.  &  G.  30;  Sloman 
England,  14  Sim.  475;  Bank  of  Eng-  v.  Bank  of  England,  14  Sim.  475; 
land  v.  Parsons,  5  Ves.  665,  669;  Ashby  v.  Blackwell,  2  Eden,  299; 
Hartga  v.  Bank  of  England,  3  Ves  55.  and  where  it  cannot  i;ssue  any  new 

8  Telegraph  Co.  v.  Davenport,  97  shares,  the  company  should  be  re- 

TJ.  S.  369;  Sewall  v.  Boston  Water  quired  to  pay  the  value  of  the  stock. 

Power  Co.  4  Allen,   277 ;  Pratt  «.  Pollock  v.  National  Bank,  supra. 

Machinists'   Nat.  Bank,   123  Mass.  *  Weaver®.  Barden,  49  N.Y.  286. 

110;  Lowry  v.   Commercial  Bank,  *  Pratt  ®.  Mechanics'  Nat.  Bank, 

Taney'sDec. 310;  Pollocks. National  123  Mass.  110;  Sewall  v.  Boston  Wa- 

Bank,   7  N.  Y.   274;  Baltimore®.  ter  Works  Co.  4  Allen,  277. 

Ketchum,  57  Md.  23 ;  Chew  v.  Bank  s  Sewall  v.  Boston  Water  Works 

of  Baltimore,  14  Md.  199 ;  Strange  v.  Co.,  supra. 


410         QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

as  against  the  company,  for  his  loss.1  Neither  the  absence 
of  blame  on  the  part  of  the  officials  of  a  company,  in  making 
an  unauthorized  transfer,  nor  the  bona  fides  of  a  purchaser  of 
certificates  stolen  from  the  owner,  is  a  defense  to  a  demand 
and  suit  by  the  real  owner.* 

§  310.  RIGHTS  OF  INNOCENT  HOLDER  FOR  VALUE  OF 
NEW  CERTIFICATE. — The  title  of  a  bona  fide  holder  for 
value,  by  proper  indorsement,  of  a  new  certificate 
of  stock  issued  by  a  corporation  upon  a  forged  indorse- 
ment, or  of  a  new  certificate  of  stock,  properly 
indorsed,  issued  in  place  of  a  stolen  certificate,  re- 
ceiving the  same  without  notice,  and  for  a  valuable  con- 
sideration advanced  upon  the  faith  and  credit  thereof,  is 
free  from  the  infirmities  of  his  transferrcr.  Such  transferree 
is  not  bound  to  look  beyond  the  certificate,  or  to  as- 
certain the  validity  of  the  transfer  from  the  books  of 
the  company.  Holding. such  new  certificate,  he  has  a  title 
by  equitable  estoppel  as  against  the  company,  not  from  the 
person  perpetrating  the  fraud,  but  as  having  acted  upon  the 
statements  and  representations  of  the  company  in  issuing 
such  new  certificate.8  As  between  himself  and  the  company, 
such  bona  fide  holder  for  value  is  not  required,  upon 
proceedings  in  equity,  to  surrender  the  shares  issued  to 
him,  although  by  reason  of  obedience  to  other  decrees  re- 
quiring the  issue  of  new  shares  to  the  real  owner,  the  cor- 
poration has  issued  a  greater  amount  of  capital  stock  than 
authorized  by  its  charter.4 


'Midland  Ry.  Co.  t>.  Taylor,  28  Mass.  110;  Bank  v.  Lanier,  11  Wall. 

Bcav.  287:  s.  c.  8  H.  L.  Cas.  751.  369;  in  re  Bahia  etc.  Ry.  Co.L.  R.  3 

1  Telegraph  Co.  c.Davenport,  97  U.  Q.  B.  584 ;  Hart  v.  Frontino  etc.  Co. 

S.  369.  L.   R.   5  Ex.  Ill;  Simra  v.  Anfjlo- 

1  Lowry    t>.    Commercial    Bank,  American  Tel.  Co.  L.  R.  5  Q.  B.  D. 

Campbell,  310;  Strange  v.  Houston  188. 

&  T.  Ry.  Co.  53  Tex.  162;  Salisbury  4  Machinists'  Nat.  Bank  v.  Field, 

Mills  «.  Townsend,  109  Mass.  115;  126  Mass.  345. 
Pratt  v.  Mechanics'  Nat.  Bank,  123 


ILLEGAL   AND   TORTIOUS   PLEDGES.  411 

The  rules  of  equitable  estoppel  relative  to  forgery  in 
stock  certificates  were  applied  in  a  case  where  a  loan  was 
made  by  a  bank  in  good  faith  upon  a  memorandum  of  in- 
debtedness, as  collateral  security  for  which  there  was 
pledged  what  purported  to  be  a  certificate  for  two  hundred 
shares  of  stock  of  a  railway  company  issued  in  the  name  of  the 
bank.  The  certificate  in  fact  was  originally  for  two  shares 
only,  and  in  the  name  of  a  third  person,  the  alterations 
being  made  by  forged  erasures  and  interlineations.  Upon 
payment,  the  cashier  of  the  bank,  there  being  no  suspicion 
of  the  genuineness  of  the  certificate,  indorsed  the  same  in 
blank,  to  restore  its  availability  to  the  pledger,  and  returned 
it  to  him.  Afterwards  another  loan  was  obtained  from 
Matthews  upon  the  same  collateral.  The  forgery  being 
discovered,  and  the  pledger  arrested  and  bankrupt,  Matthews 
brought  an  action  against  the  bank  upon  the  cashier's  in- 
dorsement. The  rules  of  estoppel  in  pais  were  enforced 
against  the  bank  to  set  up  the  forgery  as  a  defense  to  the 
claim  of  the  second  pledgee,  *'  because  it  would  be  a  wrong 
on  its  part  and  injury  to  others  whose  conduct  had  been 
influenced  by  its  acts  and  omissions."1  The  same  rules  of 
estoppel  were  applied  in  favor  of  a  holder  for  value,  in 
good  faith,  of  a  certificate  of  stock,  where  such  certificate, 
while  in  the  name  of  a  third  person,  was  in  possession  of  the 
owner,  but  was  stolen  from  him  by  such  third  person,  and 
negotiated  as  by  one  having  the  legal  title.9 

§  311.  THE  TITLE  ACQUIRED  UNDER  FRAUDULENT 
ISSUES  OF  FICTITIOUS  STOCK. — The  title  of  pledgees  of 
certificates  of  stock,  holding  the  same  for  value  advanced 
in  good  faith,  without  notice  of  defenses,  is  sustained  where 
the  issue  and  hypothecation  of  such  stock  is  a  fraud  on 
the  part  of  the  officers  of  the  company  issuing  the  same. 
The  rule  is  limited  to  cases  where  such  issue  of  fictitious 

1  Matthews    v.     National   Bank,         *  Winter  v.  Belmont  Mining  Co. 
Holmes,  396.  53  Cal.  428 


412          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

stock  is  made  by  the  governing  officers  of  a  corporation 
and  the  recognized  representatives  of  it,  with  plain  au- 
thority to  make  transfers  and  issue  certificates.  In  such 
cases  (as  said  by  the  United  States  Supreme  Court,  in  the 
case  of  Pollard  v.  Vinton),1  "  The  officer  is  the  corporation 
[the  italics  are  those  of  the  court]  for  many  purposes.  Cer- 
tainly a  corporation  can  be  charged  with  no  intelligent 
action,  or  with  intending  any  purpose,  or  committing  any 
fraud,  except  as  this  intelligence,  this  purpose,  this  fraud, 
is  evidenced  by  the  actions  of  its  officers.  And  while  it 
may  be  conceded  for  many  purposes  they  are  agents,  and 
are  to  be  treated  as  agents  of  the  corporation,  or  of  the 
corporators,  it  is  also  true  that,  for  some  purposes,  they  are 
the  corporation,  and  their  acts  as  such  officers  are  the  acts 
of  the  corporation  itself."  The  court  (by  Miller,  Jus.) 
cite  in  this  connection  the  case  of  the  N.  Y  &  N.  H.  R.  R. 
Co.  v.  Schuyler.9  The  Schuyler  frauds  in  connection  with 
the  capital  stock  of  the  New  York  and  New  Haven  Rail- 
road Company  gave  occasion  to  the  leading  cases  on  the 
subject  of  the  rights  of  holders  of  certificates  of  stock,  for 
value,  without  notice,  where  the  transactions  were  grossly 
fraudulent,  and  the  issue  of  fictitious  stock  enormous.  The 
railroad  company,  however,  received  the  benefit  of  part  of 
the  money  raised  upon  the  fictitious  stock  as  collateral 
security,  using  it  in  the  construction  of  the  road.  Schuyler 
himself  was  president  and  director,  as  well  as  transfer 
agent.8 

§  312.  ESTOPPEL  IN  PAIS  AS  APPLIED  AGAINST  COR- 
PORATIONS.— The  principles  upon  which  such  decisions  are 
founded  are  stated  in  New  York  and  New  Haven  Railroad 
Company  v.  Schuyler.  The  natural  and  established  dis- 
tinction between  that  which  a  corporation  is  not  authorized 
to  do  under  any  circumstances,  or  which  in  its  very  nature 

1 105  U.  S.  712.  ler,  84  N.  Y.  30;  Bridgeport  Bank  «. 

»  84  N.  Y.  80.  N.Y.  &  N.H.  R.R.  Co.  30  Conn.  231. 

»  N.  Y.  &  N.H.  R.R.  Co.  v.  Schuy- 


ILLEGAL  AND  TORTIODS   FLEDGES.  413 

is  utterly  prohibited  by  law,  or  its  charter,  and  that  which 
it  may  do  for  certain  purposes,  and  not  for  others,  or  on  the 
happening  of  a  particular  event,  is  recognized  in  the 
opinion.1  The  rule  is  then  applied  to  corporations  and 
their  officers  that  where  a  principal  has  clothed  his  agent 
with  power  to  do  an  act  upon  some  extrinsic  fact, 
necessarily  and  peculiarly  within  the  knowledge  of  the 
agent,  and  of  the  existence  of  which  the  act  of  executing 
the  power  is  itself  a  representation,  a  third  person  dealing 
with  such  agent  in  entire  good  faith,  pursuant  to  the  ap- 
parent power,  may  rely  upon  the  representation,  and  the 
principal  is  estopped  from  denying  its  truth  to  his  preju- 
dice.* Corporations  are  held  responsible  to  the  same  ex- 
tent, and  under  the  same  circumstances,  that  a  natural 
person  is  chargeable  with  the  acts  or  neglects  of  his  agent; 
and  if  the  agents  employed  conduct  themselves  fraudu- 
lently so  that  if  they  had  been  acting  for  private  employers 
the  persons  for  whom  they  were  acting  would  have  been 
affected  by  their  fraud,  the  same  principle  prevails  where 
the  principal  under  whom  the  agent  acts  is  a  corporation.8 
And  a  civil  action  may  be  brought  against  such  corporation 
by  an  injured  person  for  every  grade  and  description  of 
forcible,  malicious,  or  negligent  tort  or  wrong  which  it 
commits,  however  foreign  to  its  nature  or  beyond  its  powers 
by  law  or  charter  the  wrongful  transaction  may  be.4  But 


1  Mechanics'  Bank  v.  Bank,  16  N.  Great  Western  Ry.  Co.  5  H.  L.  Cas. 

Y.  151, 155 ;  N.Y.  &  N.  H.  R.R.  Co.  86. 

v.  Scbuyler,  34  N.  Y.  30:  Willis  v.  *  Railroad  Co.  v.  Schuyler,  34  K 

Philadelphia  and  Darby  Ry.  Co.  13  Y.  30;  Bisscll  v.  Railroad  Co.  22  N. 

Phila.  33.  Y.  305,  309 ;  Goodspced  «.  Bank,  22 

'Railroad  Co.  v.  Schuyler,  34  N.  Conn.  54;  Life  Insurance  Co.  v.  In- 

Y.  30;  Griswold  v.  Haven,  25  N.  Y.  surance  Co.  7  Wend.  31 ;  South  &  N. 

595.  Ala.  R.  R.  Co.  •».  Chappell,  61  Ala. 

•Railroad  Co.  v.  Schuyler,  34  N.  529;  Albert®.  Savings  Bank,  2  Md. 

Y.  30;   Merchants'  Bank  v.  State  Dec.  169;  Carter  v.  Howe  Machine 

Bank,  10  Wall.  650  ;  Thayer  v.  Bar-  Co.  51  Md.  290;  Williams  v.  Ins.  Co. 

low,  19  Pick.  511;  Frankfort  Bank  57  Miss.  759;    Frankfort  Bank  «. 

t.  Johnson,  24  Me.  490;  Ranger  v.  Johnson,  24  Me.  490;  Beach  v.  Ful- 


414          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

in  order  to  be  entitled  to  the  application  of  the  rules  of 
estoppel  the  person  relying  upon  the  false  representations 
of  another  must  have  been  ignorant  of  the  truth,  and  have 
acted  upon  such  false  representations.1 

§  313.  EQUITABLE  ESTOPPEL,  AS  ENFORCED  IN  NATION- 
AL BANK  v.  WATSONTOWN  BANK. — The  rules  of  equitable 
estoppel,  or  estoppel  by  conduct,  were  applied  by  the 
United  States  Supreme  Court,  in  the  late  case  of  National 
Bank  v.  Watsontown  Bank,*  arising  out  of  a  claim  to 
a  transfer  and  issue  of  certificates  by  the  latter  bank  under 
a  pledge  of  its  shares  to  the  Cecil  National  Bank  by  Powell  & 
Co.,  with  power  of  sale  upon  default.  Such  default  occurring, 
the  certificates  were  forwarded  to  the  bank  for  transfer,  and 
entries  were  made  in  the  ledger.  Upon  request  of  the  pled- 
gee, the  cashier  of  the  Watsontown  Bank  undertook  to  sell 
the  stock  and  sold  some  shares,  making  debit  and  credit 
entries  on  the  stock  ledger.  The  pledger  became  insolvent, 
and  the  bank  then  refused  to  complete  the  transfer,  claiming 
a  statutory  lien  upon  the  stock  for  an  indebtedness  of  the 

ton  Bank,  7  Cow.  436;    Ricord  v.  a  company,  induced  B.  by  false  repre- 

Central  Pac.  R.R.  Co.  15  Nev.  167;  sentations  that  the  company  needed 

Alexander  v.  Relfe.    74  Mo.    495;  the  aid  of  her  stocks,  to  surrender 

Boogher  v.  Life  Assn.  75  Mo.  32."};  her  certificates,  indorsed  with  blank 

Philadelphia  Ry.  Co.  v.  Quiglcy,  21  power  of  attorney,  A  giving  to  B  his 

How.  (U.  S.)  209;  National  Bank  «.  own  due-bill.    The  stock  was  then 

Graham,    100  U.  S.   702;  Copley  v.  transferred  and  sold  to  an  innocent 

Machine  Co.  2  Woods,  494;  Chesnut  holder  for  value,  the  proceeds  being 

Hill  Turnpike  Co.  V.  Rutter,  4  Serg.  appropriated  by  B.     Subsequently, 

&  R.  16;    Fcntoii  v.  Machine  Co.  9  by  connivance  with  other  officers,  A 

Phila.  189;  Cumberland   Ry.  Co.®.  obtained  the  issue  of  shares  in  ex- 

Baab,  9  Watts,  458;  Vance  v.  Erie  cess  of  the  charter  limit  to  B,  the 

Ry.  Co.  32  N.  J.  L.  334;  Green  v.  company    continuing  to  pay  divi- 

London  Omnibus  Co.  7  C.  B.  N.  S.  dends  to  her.    A  bill  was  brought  to 

290;    National  Ex.  Co.  v.  Drew,   2  hold  the  company  liable  on  the  fic- 

McQ.  H.  L.  Cas  103;  Yarborough  v.  titious    stuck,    but    was    dismissed 

Bank  of  England.  16  East.  6;  Walk-  upon  the  limitation  of  the  doctrine 

er  v.  Railway  Co.  L.  R.  5  C.  P.  640.  of  estoppel  stated  in  the  text. 

•Wright's  App.  99  Pa.   St.  425.  *  National   Bank  v.  Watsontown 

The  facts  were:    A,  the  president  of  Bank,  105  U.  S.  220. 


ILLEGAL   AND   TORTIOUS   PLEDGES.  415 

pledger.  The  court  (Matthews,  Jus.)  say:  "  On  the  sup- 
position that  not  the  legal  title,  but  only  an  equity,  based 
upon  an  executory  contract  for  a  transfer,  passed  to  the  ap- 
pellants, by  virtue  of  the  transaction  with  the  cashier  of  the 
Watsontown  Bank,  their  right  to  the  relief  prfiyed  for  is  not 
less  clear.  Aside  from  the  recognition  of  the  title,  as  com- 
plete, by  accepting  and  acting  upon  the  power  of  attorney 
given  by  Tome  to  sell  and  transfer  it  as  his  stock,  and  the 
sales  made  to  the  Scotts  under  it,  whose  title  is  not  denied, 
and  yet  cannot  be  better  than  that  of  their  vendor,  which  is 
disputed,  the  subsequent  conduct  of  the  Watsontown  Bank 
raises  an  equity  against  it,  which  is  superior  to  its  legal 
right  to  insist  upon  a  lien  on  account  of  the  debt  of  Powell 
&  Co.  [the  pledgers].  When  Tome  made  his  claim  on 
behalf  of  the  Cecil  National  Bank  [the  pledgee]  for  a  trans- 
fer of  the  stock,  if  the  appellee  had  intended  to  insist  on  its 
legal  rights  and  assert  its  lien,  then  was  the  proper  time  to 
do  it ;  for  it  then,  at  least,  had  notice  of  the  interest  and 
the  claim  of  the  appellants.  If  it  had  done  so  promptly 
the  latter  might  still  have  had  an  opportunity  to  obtain 
other  security,  or  to  enforce  by  other  means  their  claims 
against  their  debtors,  who,  although  in  default,  do  not  ap- 
pear to  have  been  as  yet  in  extremis.  So  far,  however,  from 
adopting  this  course,  the  Watsontown  Bank  pursued  one 
exactly  the  reverse.  It  permitted  the  parties  by  its  actual 
exercise  to  rest  in  the  belief  that  their  right  to  dispose  of  the 
stock  for  the  purpose  of  paying  the  debt  due  them  would 
not  be  questioned,  until  the  failure  and  assignment  of  Powell 
&  Co.  made  any  other  resort  useless;  and,  having  induced 
them  to  alter  their  condition  by  reliance  upon  assurances, 
which  were  equivalent  to  a  declaration  that  it  had  no  adverse 
claim,  the  appellee  cannot  now  be  permitted  to  assert  a 
lien,  lost  by  its  own  laches,  and  the  enforcement  of  which 
would  operate  as  a  fraud." 

§  314.     EQUITABLE  ESTOPPEL  AS  APPLIED  TO  THE  TERMS 
OF  CERTIFICATES. — The  rules  of  equitable  estoppel  as  ap- 


416          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

plied  to  representations  made  by  a  company  upon  the 
face  of  certificates  of  stock  by  which  a  company  is  estopped 
to  deny  that  it  has  the  stock  represented  by  the  certificates 
are  enforced  where  it  is  stated  that  the  shares  of  stock  are 
transferable  upon  the  books  of  the  company  only  upon  the 
return  and  cancellation  of  the  certificate.  A  by-law  upon 
its  records  that  such  certificates  of  stock  may  be  transferred 
by  a  separate  instrument  does  not  affect  the  application  of 
the  rule  of  estoppel.  The  fact  that  other  shares  of  stock 
have  been  issued  by  the  company  upon  an  assignment  by  an 
independent  deed,  or  upon  other  considerations,  without  the 
surrender  of  a  certificate,  so  worded,  is  no  excuse  or  defense 
for  the  company,  as  against  a  holder  of  the  certificate,  in- 
dorsed for  value  advanced  in  good  faith,  without  notice  of 
equities.1  The  holder  for  value  of  a  certificate  issued  by 
the  proper  officers  of  a  corporation,  without  notice  of  fraud, 
or  other  defenses  against  the  same,  has  a  primary  and  direct 
claim,  either  to  be  admitted  as  a  stockholder  of  the  corpora- 
tion, or  where  that  is  impossible,  the  limit  placed  by  the 
charter  upon  the  issue  of  stock  having  been  reached,  to  such 
damages  as  shall  be  sufficient  to  recoup  him  for  his  loss." 
Such  holder  for  value,  without  notice,  upon  a  transfer  of  the 
shares  of  stock  to  his  name  upon  the  books  of  the  company, 
is  protected,  although  there  be  no  authority  on  the  part  of 
the  company  to  make  the  transfer  because  of  the  number  of 
shares  of  stock  already  issued.8  Although  a  certificate  of 
stock  itself  is  not  the  title  to  the  shares  of  stock,  it  is  an 
authoritative  declaration  that  such  a  title  exists,  which  may 
operate  as  an  equitable  estoppel  in  favor  of  third  persons 
who  part  with  value  in  the  belief  that  it  is  true.4 


1  Strange  0.  Houston  &  T.  Ry.  Co.  •  Bank  of  Kentucky  v.  Sclmylkill 

53  Tex.162;  Holbrook  0.N.J.  Zinc  Co.  Bank,  1  Pars.  180. 

57  N.  Y.  616;    McNeil  v.  Tenth  Nat.  »  Bayard  v.  Bank,  52  Pa.  St.  232. 

Bank.  40  Ib.  331;  N.  Y.  &  N.  H.  R.  4  Bank  of  Kentucky  v.  Sclmylkill 

R  Co. «.  Schuyler,  34  Ib.  81;   Bris-  Bank,  1   Pars.  180;  Railroad  Co.  v. 

bane  v.  Railroad  Co.  25  Hun,  438;  Schuyler,  34  N.  Y.  30,  52,  80;  in  re 

Bayard  v.  Bank,  52  Pa.  St.  233.  Bahia  &  S.  F.  Ry.  Co.  L.  R.  3  Q.B. 


ILLEGAL  AND  TORTIOTJS  PLEDGES.  417 

§  315.  ESTOPPEL  OF  REAL  OWNER  BY  BLANK  INDORSE- 
MENT  OF  CERTIFICATES. — The  real  owner  of  shares  of  stock 
holding  the  certificates  may  estop  himself  as  against  any 
claim  against  a  company  to  replace  his  stock,  or  to  pa}'  him 
damages  for  an  unauthorized  transfer  thereof,  by  gross  care- 
lessness in  his  acts  in  and  about  such  certificates,  or  by  his 
indorsement  in  blank  and  delivery  of  them.  The  real  owner 
may  estop  himself,  by  making  a  blank  indorsement,  with 
irrevocable  power  of  attorney  to  transfer,  upon  his  certificate 
of  stock,  and  then  entrusting  the  same  to  a  third  person, 
under  a  secret  restriction  as  to  the  use  to  be  made  of  it, 
not  appearing  upon  the  certificate,  and  known  only  to  the 
parties.  By  such  indorsement  and  delivery  of  the  certificates, 
the  legal  title  and  apparent  ownership  vest  in  the  holder. 
Where  such  certificates  pass  into  the  hands  of  bona  fide 
pledgees,  for  value,  without  notice,  the  real  owner,  whose 
misplaced  confidence  has  enabled  the  deception  to  be  prac- 
tised, must  suffer  the  loss.  In  dealings  with  his  certificates, 
the  owner  is  required  to  use  reasonable  care,  as  when  in- 
dorsed in  blank  and  in  the  hands  of  a  third  person,  the 
presumption  is  that  he  is  a  holder  for  value,  entitled  to  use 


595.    In  Willis  v.   Philadelphia  &  business  entrusted  to  their  care.  Nor 

Darby  Ry.  Co.  13  Phila  33,  the  court  is  it  necessarily  conclusive  against 

(Hare,  P.  J.)  say:  "  It  is  well  settled  such  a  purchaser  that  the  party  from 

that  one  who,   as  a  purchaser  or  whom  he  bought  was  cognizant  of 

lender,  gives  value  on  the  faith  of  a  or  participated  in  the  fraud.     If  a 

certificate    of  stock,   authenticated  certificate  of  stock  is  not  a  ncgotia- 

by  the  seal  of  the  corporation  and  ble  instrument,  it  is  a  written  decla- 

the  signatures  of  the  proper  officers,  ration  that  the  holder  has  a  definite 

acquires  an  equitable  title  and  may  share  in  the  capital  or  profits  of  the 

require  the  corporation  to  transfer  the  concern,  which,  though  delivered  to 

stock  to  him,  or  respond  in  damages  him,  is  intended  for  circulation  and 

for  the  default.    It  is  not  a  sufficient  virtually  addressed  to  all  the  world, 

answer  to  such  a  demand  that  the  and  third  persons  who  are  misled  by 

certificate  was  fraudulently  issued,  such  an  instrument,  may  justly  rc- 

because    corporations  are   not  less  quire  that  the  loss  shall  fall  on  the 

than  natural  persons  answerable  for  corporation,  and  not  on  them." 
the  conduct  of  their  agents  in  the 
27 


418         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

such  certificates  of  stock  as  he  pleases.1  Where,  however, 
reasonable  care  has  been  exercised  by  the  owner,  he  is  not 
responsible  for  the  loss.  As  where  blanks  in  a  power  of 
attorney  indorsed  on  a  certificate  for  200  shares  were  filled, 
so  as  to  transfer  60  shares  only,  but  by  unauthorized  changes 
and  erasures  the  indorsement  was  made  to  cover  the  whole 
200  shares.  The  officers  of  the  company  with  great  neg- 
ligence, issued  a  new  certificate  upon  the  surrender  of  the 
erased  and  forged  certificate,  without  inquiry.  The  com- 
pany was  required  either  to  replace  the  stock,  or  to  pay  the 
owner  the  market  value  at  the  time  of  entering  the  decree.* 
A  bona  fide  holder  for  value,  without  notice,  of  a 
certificate  of  stock,  with  a  warrant  of  attorney  to  transfer 
indorsed  in  blank  by  the  treasurer  of  a  company  negotiat- 
ing the  same,  is  protected  as  against  persons  subsequently 
purchasing  the  same  stock  at  a  general  sale  of  the  assets 
of  such  company,  who  received  no  certificate.  Having  a 
right  to  presume  the  act  of  indorsement  was  made  by  the 
officer  whose  functions  naturally  and  reasonably  included 
such  an  act  and  that  it  was  preceded  by  all  needful  circum- 
stances, the  holder  was  not  required  to  seek  a  verification 
of  the  presumption  by  an  inspection  of  the  corporation  books. 
Third  persons  are  authorized  to  act  upon  the  indorsement  by 
such  an  officer  as  being  an  authentic  proceeding  of  the  corpo- 
ration, although  it  be,  in  fact,  a  fraud.8  Where  trustees  of  a 
corporation,  having  charge  of  the  transfer  of  shares,  per- 
mitted certain  shares  to  be  transferred  to  an  innocent  person, 
advancing  value,  without  notice,  by  one  acting  in  fraud  and 
without  authority,  the  loss  resulting  was  placed  upon  the 
stockholders,  in  a  suit  between  the  latter  and  the  innocent 
person.4 

'Wright's  A  pp.  99  Pa.  St.  425;  •  Scwall  ».  Boston  Water  Power 

Pennsylvania  R.  R.  Co.'s  App.86  Ib.  Co.  4  Allen,  277. 

80;  Borland  v.  Clark,  20  Kans.  349;  •  Walker  v.   Detroit  Transfer  Co. 

Ault  v.   Colket,  2  W.  N.  C.  322;  47  Mich.  338. 

Coles  0.  Bank  of  England,  10  A.&  4  Cohen  e.  Gwynne,  2  Md.   Ch. 

E.  437;  Young  v.  Grote,4  Bing.  252.  Dec.  357. 


ILLEGAL  AND  TORTIOTJS  PLEDGES.  419 

§  316.  THE  MISAPPROPRIATION  OF  STOCK  CERTIFICATES 
BY  BROKERS  AND  AGENTS. — The  owner  of  shares  of  stock 
iu  a  corporation,  holding  the  certificates  issued  therefor,  who, 
having  indorsed  such  certificates  with  an  irrevocable  power 
of  attorney  to  transfer  it  in  blank,  entrusts  the  same,  in  the 
usual  courses  of  business,  to  a  third  person  as  a  broker  or 
agent,  for  some  special  purpose,  is  estopped  to  set  up  any  fraud 
or  misappropriation  on  the  part  of  such  broker  or  agent,  as 
against  an  innocent  pledgee,  advancing  value,  without  notice, 
upon  the  apparent  ownership  of  the  certificates  by  such  a 
broker  or  agent.  No  secret  equities  of  fraud  or  misappro- 
priation can  be  set  up  by  such  owner,  as  existing  between 
the  agent  or  broker  and  himself,  to  the  prejudice  and  loss  of 
a  pledgee  for  value,  without  notice.  The  person,  who  thus 
places  another  in  a  position  so  that  he  is  able  to  commit  a 
fraud,  should  suffer  the  loss  rather  than  an  innocent 
pledgee,  who  deals  with  such  person  upon  the  credit  of  his 
possession  of  such  indicia  of  title  as  a  certificate  of  stock 
indorsed  in  blank  and  apparent  ownership  thus  conferred.1 
Upon  a  pledge  of  stock  certificates  by  an  agent  or  other 
person  entrusted  with  the  legal  title  thereto  by  indorsement 
in  blank  and  apparent  ownership,  for  his  own  debt,  as  against 
a  pledgee,  advancing  value,  in  good  faith,  in  the  usual 
course  of  business,  and  without  notice  of  the  secret  equities 
between  the  real  owner  and  the  pledger,  or  that  any  person 
claimed  an  interest  therein  other  than  the  pledger,  the 
owner  is  estopped  to  set  up  such  fraud  and  misappropria- 
tion to  defeat  the  title  thus  acquired.8  Certificates  of  stock 
held  in  secret  trust  by  A,  with  full  evidences  of  title,  were 
transferred  to  B,  and  B  in  turn,  transferred  to  C,  both  trans- 

1  Burton    v.    Peterson,    12  Phila.  Barden,  49  N.  Y.  286 ;  Atlantic  Bank 

397;  Burton's  App.  93  Pa.  St.  114;  v.  Ferree,  17  K  J.  Eq.  117;  Stone  v. 

Penn.  R.  R.  Co.'s  App.  86  Ib.  80;  Maryx,    14  Nev.    362;    Strange  0. 

Dovey's  App.  97  Ib.  53;  Borland  ®.  Houston  &  T.  R.  R.  Co.  53  Tex.  162; 

Clark,  26  Kan.  349;  Sstltus  v.  Ever-  Thompson  v.  Tolland,  48  Cal.  112; 

ett,  20  Wend.  278;  Crocker  v.  Crock-  Gass  v.  Hampton,  16  Nev.  185. 

er,  31  N.  Y.  507;  McNeil  «.  Tenth  •  Otis  v..  Gardner,  105  111.  436. 
Nat.  Bank,  46   Ib.  325 ;  Weaver  v. 


420          QUASI-NEGOTIABLE  COLLATEKAL   SECURITIES. 

fers  being  for  value,  and  without  notice,  actual  or  implied, 
either  by  B  or  C,  that  a  secret  trust  existed  in  favor  of  third 
persons.  The  cestuis  que  trust  are  estopped  to  object  to  the 
transfers.1 

The  rules  of  equitable  estoppel  were  applied  in  favor  of 
stock  brokers,  who,  upon  request,  and  delivery  of  certifi- 
cates of  stocks,  duly  indorsed,  by  one  claiming  to  own  them, 
but  who,  in  fact,  held  them  as  collateral  security  for  a  debt, 
the  amount  of  which  had  been  tendered  by  the  real  owner 
of  the  stock,  but  refused,  sold  the  shares  on  the  stock  ex- 
change, paying  the  proceeds  to  the  person  from  whom  they 
received  them,  without  any  knowledge  of  the  previous 
transactions.  The  real  owner  sued  the  stock  brokers  to  re- 
cover damages.  The  action  of  the  stock  brokersjn  making 
such  sale,  not  depending  upon  the  actual  title  or  authority 
of  the  party  with  whom  they  dealt  directly,  but  having  been 
derived  from  the  acts  of  the  real  owner,  the  latter  was  es- 
topped from  disputing  as  against  them,  the  existence  of  the 
title  or  power,  which  through  neglect  or  mistaken  confidence 
•was  caused  or  allowed  to  appear  to  be  vested  in  the  person 
who  delivered  the  certificates  to  them.*  But  where  blank 
transfers  of  shares  had  been  delivered  to  a  broker  for  a 
valid  purpose,  and  in  order  to  carry  out  a  deceit  and  fraud 
and  to  secure  the  money  of  innocent  persons,  the  broker 
was  obliged  to  resort  to  felony  to  get  the  certificates, 
and  to  forgery  to  render  them  available,  the  principle 
was  announced  in  an  action  against  the  company,  by  the  de- 
frauded owner  to  have  his  shares  replaced,  that,  in  order  to 
constitute  an  estoppel  in  pais  as  against  him,  his  negligence 
must  have  been  the  proximate  cause  of  the  deceit,  and  that 
the  principles  of  equitable  estoppel  required  not  only  an  act 
invalid  per  se,  but  a  person  forbidden  to  assert  its  invalidity, 
for  equitable  reasons.* 


1  Borland  «.  Clark,  26  Kan.  349.          N.  S.  400;   s.  c.   7  H.  &  N.  603; 
»  Stone  t».  Maryx,  14  Nev.  362.  (Wilde,  B.);  aff.  2  H.  &  C.  175. 

*  Swan  v.  N.  B.  Aust.  Co.  7  C.  B. 


ILLEGAL  AND  TORTIOUS  PLEDGES.  421 

§  317.  ESSENTIAL  CONDITIONS  OF  PLEDGE,  UNDER  MIS- 
APPROPRIATION AND  FRAUD. — Absence  of  knowledge  or 
notice  of  misappropriation  is  essential  where  certificates  of 
stock  are  received  as  collateral  security  from  persons  en- 
trusted with  the  legal  title  and  apparent  ownership,  in 
order  to  entitle  the  pledgee  to  protection.  Bad  faith,  or 
knowledge  or  notice  of  fraud  is  necessary  to  defeat  the 
pledgee's  title,  who  advances  money  upon  such  evidences  of 
title  and  ownership  ;  but  where  these  are  shown,  no  title 
can  be  acquired  even  by  a  holder  for  value.1  A  certificate 
of  stock  was  appropriated  by  an  agent  entrusted  therewith, 
to  its  proper  purpose  as  collateral  security,  the  name  of  the 
pledgee  being  inserted  in  the  power  of  attorney,  and  the 
debt  having  been  paid,  the  stock  was  returned  to  the  agent. 
A  pledgee  subsequently  receiving  the  same,  being  chargeable 
with  notice  of  the  erasure  of  the  name  of  the  first  pledgee, 
acquired  no  rights  therein  as  against  the  real  owner,  the 
limited  authority  of  the  agent  expiring  with  the  making  of 
the  first  pledge.*  The  pledgee  in  cases  of  misappropria- 
tion of  stock  certificates,  must  also  be  a  holder  for  value  in 
good  faith,  without  notice,  in  the  usual  course  of  business. 
So  far  as  the  same  are  pledged  as  collateral  security  for  an 
antecedent  debt,  without  further  consideration,  the  title 
of  the  pledgee  is  subject  to  antecedent  equities  in  states 
where  the  restricted  rule  prevails.3 

A  pledge  of  a  certificate  of  stock  of  a  bank  was  made 
by  a  cashier  as  collateral  security  for  an  advance  to  him- 
self, the  certificate  being  one  of  several  signed  in  blank  by 
the  president,  and  was  also  signed  by  the  cashier,  and  filled 
up  with  the  name  of  the  latter  as  owner.  Although  the 
pledgee  advanced  money  in  good  faith  and  was  in  a  general 
sense  an  innocent  holder  of  the  certificate,  the  circumstances 
that  the  cashier  was  acting  for  himself  in  issuing  the  cer- 

1  Crocker  v.   Crocker,    31   N.    Y,  *  Denny  v.  Lyon,  88  Pa.  St.  98. 

507;  Porter  v.  Parks,   49  Ib.    564;  3  Weaver  >;.   Barden,    49    K   Y. 

Strange  v.  Houston  &  T.  R.  R.  Co.  286;  Strange  v.  Houston  &  T.  R.  K. 

53  Tex.  162.  Co.,  53  Tex.  162. 


422          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

tificate,  and  was  using  it  for  his  own  benefit,  charged  the 
pledgee  with  the  duty  of  inquiry ;  and  failing  to  make  the 
investigation,  which,  if  made,  would  have  developed  the 
fraud,  she  was  not  an  "  innocent  person,"  the  issue  of  the  cer- 
tificate being  unauthorized  and  a  fraud,  nor  was  the  pledgee 
entitled  to  an  action  Tor  her  loss  as  against  the  bank.1 

§  318.  MEASURE  OF  DAMAGES,  IN  CASES  OF  FORGERY 
AND  SPURIOUS  STOCK. — The  measure  of  damages  allowed 
the  real  owner,  where  a  company  has  issued  upon  forged 
indorsements  new  certificates  of  stock  which  have  passed  into 
the  hands  of  innocent  holders  for  value,  without  notice,  is 
the  value  of  the  stock  at  the  time  of  the  demand  for  the  is- 
sue of  new  shares,  with  any  dividends  that  may  have  accrued; 
or  the  company  may  be  required  to  replace  the  stock,  issue 
new  certificates,  and  pay  dividends.*  As  against  a  prior 
indorser  of  a  certificate,  erased  and  forged^  but  without 
knowledge  thereof,  upon  the  faith  of  whose  indorsement  ad- 
vances were  made  upon  the  certificate  as  collateral  security, 
the  pledgee  recovered  the  whole  amount  of  his  loan,  the 
pledgor  having  become  bankrupt,  and  a  felon  by  reason  of 
the  forgery.1  In  a  case  where  a  company  refused  to  trans- 
fer stock,  new  certificates  having  been  already  issued  upon 
fraudulent  misrepresentations,  damages  were  estimated  at 
the  market  value  of  the  stock  on  the  day  of  demand,  and 
interest.4  The  like  rule  was  applied  in  a  case  of  certificates 
tainted  with  forgery,  the  question  of  damages,  if  there  were 
no  market  value  at  the  time  of  the  demand,  being  left  with 
the  jury  on  the  evidence.5  Where  erasures  had  been  made 
upon  a  certificate  increasing  the  number  of  shares  intended 
to  be  transferred,  and  other  forgeries,  the  company  was 

'Moores  v.  Bank,  15  Fed.  Rep.  « Willis  v.  R'y  Co.  13  Phila.  83; 

141;  aff.  Ill  U.  S.  156;  see  Western  Woodkouse  ®.  Ins.  Co.  35  La.  Ann. 

R.  R.  Co.  v.  Bank,  60  Md.,  36.  238. 

'Telegraph  Co.  v.  Davenport,  97  »In  re  Bahia  &  S.  F.  Ry.  Co.,  L. 

U.  S.  369;  Pollock  v.  National  Batik,  R  3  Q.  B.  594;  Swan  v.  Mining  Co. 

7  N.  Y.  274.  13  Q.  B.  D.  105. 

•Matthews  v.  Bank,  Holmes,  396. 


ILLEGAL  AND  TORTIOUS   PLEDGES.  423 

required  either  to  replace  such  extra  shares,  or  to  pay  the 
owner  the  market  value  at  the  time  of  entering  the  decree.1 
The  measure  of  damages  allowed  in  equity  to  pledgees, 
holding  spurious  certificates  of  stock  as  collateral  security 
for  notes  of  the  pledger,  the  president  of  a  railroad  com- 
pany issuing  the  stock,  and  who  had  loaned  their  money 
on  the  credit  of  the  representations  contained  in  such  cer- 
tificates, the  pledgees  receiving  them,  indorsed  with  the 
usual  powers  to  transfer,  in  blank,  is  subject  to  the  rule 
that  such  stock  is  held  liable  to  any  loss  or  deterioration  in 
its  value  which  might  possibly  result  from  the  fraudulent 
or  negligent  conduct  of  officers  or  directors.  The  pledgees 
of  the  stock  were  not  creditors,  nor  could  the  entire  prop- 
erty of  the  company  be  devoted  to  their  payment  to  the  ex- 
clusion of  other  persons  whose  equity  was  equal  to  their 
own.  As  no  demand  for  a  transfer  of  the  stock  had  been 
made,  the  rule  of  damages  applied  was,  that,  while  the 
pledgees  holding  genuine  certificates  should  be  given  other 
valid  certificates  of  stock,  those  who  had  advanced  their 
money  upon  the  spurious  certificates,  issued  beyond  the 
limit  prescribed  by  the  charter,'  should  be  paid  by  the  com- 
pany a  sum  equal  to  the  value  of  the  shares  claimed  by 
them  upon  the  hearing  before  the  master  to  assess 
damages.4  In  the  case  of  the  Bank  of  Kentucky  v.  Schuyl- 
kill  Bank,3  the  Legislature  of  Kentucky,  upon  request, 
passed  a  law  authorizing  the  corporation  in  that  case  to  issue 
an  amount  of  valid  stock  equal  to  and  to  be  used  in  place 
of  that  issued  fraudulently. 

1  Sewall  v.  Boston  Water  Power         » 1  Pars.  Eq.  180. 
Co.,  4  Allen,  277. 

»  Willis  v.  Philadelphia  &  Darby 
Ry  Co.,  13  Phila.  33. 


121          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 


CHAPTER  XXXII. 

THE  SUB-PLEDGE  OF  STOCK  CERTIFICATES. 


£319.  The  transfer  and  sub-pledge  of  stock  certificates. 

320.  Sub-pledges  of  stocks  for  loans  greater  than  principal  debt. 

821.  The  sub-pledge  of  stock  certificates  indorsed  in  blank. 

322.  Sub-pledges  of  stock  certificates. 

323.  The  Massachusetts  rule  as  to  sub-pledges  of  stock  certificate's. 

324.  Sub  pledges  upon  void  loans  and  antecedent  debts,  when  bubject  to 

equities.  ^ 

325.  Sub-pledges  under  a  limited  title. 

326.  Equitable  application  by  sub-pledgee  of  proceeds  from  securities. 

327.  The  broker's  use  of  customer's  stock  certificates. 


§  319.  THE  TRANSFER  OF  STOCK  CERTIFICATES  BY 
PLEDGEE. — The  pledgee  holding  certificates  of  stock,  in- 
dorsed by  the  owner  in  blank,  with  irrevocable  power  of 
attorney  to  transfer,  upon  a  present  loan  or  discount  of 
commercial  paper,  may  make  his  collateral  securities  avail- 
able for  the  purpose  of  raising  money  thereon.  He  may 
assign  and  transfer  absolutely  his  interest  in  such  col- 
laterals, together  with  the  personal  obligations  of  the 
pledger.  The  pledgee  may  also  sub-pledge  the  collateral 
stock  securities  held  by  him,  having  the  legal  title,  upon 
a  bona  fide  advance  or  discount  by  a  third  person,  not  ex- 
ceeding in  amount  the  indebtedness  for  which  such  certi- 
cates  of  stock  are  held  as  collateral.  The  pledgor  will  have 
no  cause  for  complaint  by  either  of  these  valid  uses  of  col- 
lateral securities.  He  may  entitle  himself  to  a  return  of 
such  securities  upon  payment  of  the  amount  of  his  original 
debt  at  maturity,  to  such  assignee  or  sub-pledgee  holding 
the  same.  The  right  to  transfer  and  to  sub-pledge  such 
collateral  securities  is  a  right  which  every  lender  of  money 


THE    SUB-PLEDGE   OF    STOCKS.  425 

has.  Without  it,  the  business  of  banks  and  brokers  could 
not  be  carried  on,  and  commerce  itself  would  be  needlessly 
restricted.1 

§  320.  SUB-PLEDGES  OP  STOCKS  FOR  LOANS  GREATER 
THAN  PRINCIPAL  DEBT. — The  pledgee  of  stock  certificates, 
indorsed  in  blank,  holding  the  legal  title  and  apparent 
ownership,  may  confer  upon  a  sub-pledgee  advancing  value 
upon  the  credit  of  such  title  and  apparent  ownership,  in 
good  faith,  and  without  notice  of  equities,  a  more  extended 
right,  as  against  the  owner  and  pledgor,  than  he  himself 
has.  The  presumption  arises  in  favor  of  third  persons  ad- 
vancing money  in  good  faith  and  without  notice  that  one  in 
possession  of  certificates  of  stock  indorsed  in  blank  is  the 
owner  thereof,  a  holder  for  value,  with  a  good  title.  The 
act  of  sub-pledge,  by  a  pledgee  holding  the  title  and  posses- 
sion, for  a  loan  greater  in  amount  than  the  principal  debt, 
is  unauthorized  and  fraudulent  as  between  the  parties  to  the 
original  contract  of  pledge  ;  but  as  against  the  innocent 
sub-pledgee  for  value,  without  notice,  the  owner  is  es- 
topped to  set  up  any  defenses  or  equities.  Having  enabled 
the  fraud  and  deceit  to  be  practised,  by  his  misplaced  con- 
fidence in  allowing  the  pledgee  to  appear  as  the  owner  of 
certificates  of  stock,  indorsed  in  blank,  the  pledgor  must 
bear  the  loss.9 

1  Canfield  v,  Minneapolis  Assn.  14  New  Jersey  Zinc    Co.   57  Ib.   616  ; 

Fed.  Rep.  801;  Jarvis  v.  Rogers,  13  Crocker  v.  Crocker,  31  Ib.  507;  Kort- 

Mass.  389,  417 ;  Goss  ».  Emerson,  23  right  v.  Commercial  Bank,  20  Wend. 

N,  H.38;  Chamberlain®.  Greenleaf,  91,  s.  c.  22  Ib.   348;   Chamberlain 

4  Abb.  1ST.  C.  178;  Langton  v.  Waite,  v.  Greenleaf,  4  Abb.  N.  C.  178  ;  Felt 

L.  R.  6  Eq.  165;  Ex  parte  Sergeant,  v.  Heye,  23  How.  Pr.  359;  Fatman, 

17  Ib.  279;  Donald  v.  Suckling,  L.  v.  Lobach,  1  Duer.  354-  Leavitt  v. 

R.   1    Q.   B.    385,    611 ;    France  v.  Fisher,   4  Ib.  1  ;  Prall  v.  Tilt,   28 

Clark,  22  Ch.  D.  830;  aff.  26  Ib.  257.  N.  J.  Eq.  493 ;  Mt.  Holly  Turnpike 

*  McNeil  «.  Tenth  Nat.  Bank,  46  Co.  <o.  Ferree,  18  Ib.  17 ;  Wood  v. 
N.  Y.  325;  O?den  v.  Lathrop,  65  Ib.  Smith,  92  Pa.  St.  379;  Penn.  R.  R. 
158;  Dnscoll  v.  West  Bradley  Manf.  Co.'s  App.  86  Ib  83;  Bank  of  Ken- 
Co.  59  Ib.  96;  Merchants'  Bank  v.  tuckyw.  Schuylk ill  Bank,  IPars.  Eq. 
Livingston,  74  Ib.  223;  Holbrook  «.  248;  Cherry  v.  Frost,  7  Lea,  1 ;  Jarvis 


426          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

In  the  leading  case  of  McNeil  v.  Tenth  National 
Bank1  (Rapallo,  J.),  involving  the  claims  of  a  pledgor 
as  against  a  sub-pledgee  of  stock  certificates,  indorsed 
in  blank,  the  acknowledged  rule  of  equitable  estoppel  was 
declared,  that  "  where  the  true  owner  holds  out  another, 
or  allows  him  to  appear  as  the  owner  of  or  as  having  full 
power  of  disposition  over  the  property,  and  innocent  third 
parties  are  thus  led  into  dealing  with  such  apparent  owner, 
they  will  be  protected.  Their  rights  in  such  case  do  not 
depend  upon  the  actual  title  or  authority  of  the  party  with 
whom  they  deal  directly,  but  are  derived  from  the  act  of 
the  real  owner,  which  precludes  him  from  disputing,  as 
against  them,  the  existence  of  the  title  or  power,  which 
through  neglect  or  mistaken  confidence,  he  caused  or 
allowed  to  appear  to  be  vested  in  the  party  making  the  con- 
veyance." The  court  further  say:  "If  the  owner  entrusts 
to  another  not  merely  the  possession  of  the  property,  but 
also  written  evidence  over  his  own  signature  of  title  thereto, 

«.  Rogers,  13  Mass.  105;  &.  c.  15  Ib.  stitute    and  appoint      *     *     * 
389;  Gass  v.  Hampton,  16  Nev.  185;  true  and  lawful  attorney,  irrevocably 
Stone  v.  Maryx,   14  Ib.  362 ;  Brew-  for    *    *    and  in    *    *    name  and 
ster  v.  Sime,  42  Cal.  139  ;  Thompson  behalf,  to  make  and  execute  all  ncc- 
«.  Tolland,  48  Ib.    112;  Mocatta  v.  essary  acts  of  assignment  and  trans- 
Bell,  27  L.  J.  Ch.  237 ;  in  re  Tahiti  fer  required  by  the  regulations  and 
Cotton  Co.  L.  R.  17  Eq.  273;   Lang-  by-laws  of  said  bank, 
ton  v.  Waite,  6  Ib.   165;    Simm  v.          "In  witness  whereof,  I  have  hcre- 
Anglo-Am.     Ry     Co.  5  Q.  B.   D.  unto  set  my  hand  and  seal  this    * 
188.  day  of 

1  46  N.  Y.  325,  329,  330.     McNiel          "(Signed)  B.  MCNEIL. 

•was  the  owner  of  shares  of  stock  of          "Sealed  and  sworn  in  presence  of 
a  national  bank,    the  certificate  of          *    *    *    ' 

•which  he  delivered  to  and  left  with  Without  authority,  and  without  the 

his  stockbroker  as  collateral  security  pledgor's    knowledge,  the    brokers 

for  any  balance  of  account.     Upon  pledged  the  stock  with  other  col- 

the  certificate  was  indorsed  an  as-  lateral   to    another    broker    as    se- 

signment  in  blank,  as  follows:  curity  for  a  loan  of  $4-">,000.    At  the 

"For  value  received,  the   under-  request  of  the  broker,  the  defendant 

signed  hereby  assigns  and  transfers  bank  paid  the  loan  of  $45.000  and 

unto    *    *    *    shares  of  the  capital  received    the    collateral    securities, 

stock  of  the  First  National  Bank  of  The  broker  became   insolvent  and 

St.  Johnsville,  and     do  hereby  con-  the  original  pledgor  demanded  the 


THE   SUB-PLEDGE   OF   STOCKS.  427 

and  an  unconditional  power  of  disposition  over  it,  the  case 
is  vastly  different  [from  that  of  the  pledgee  of  an  ordinary 
chattel].  There  can  be  no  occasion  for  the  delivery  of 
such  documents,  unless  it  is  intended  that  they  shall  be 
used,  either  at  the  pleasure  of  the  depositary,  or  under  con- 
tingencies to  arise.  If  the  conditions  upon  which  this  ap- 
parent right  of  control  is  to  be  exercised  are  not  expressed 
on  the  face  of  the  instrument,  but  remain  in  confidence 
between  the  owner  and  the  depositary,  the  case  cannot  be 
distinguished  in  principle  from  that  of  an  agent  who  receives 
secret  instructions  qualifying  or  restricting  an  apparently 
absolute  power.  *  *  *  I  am  at  a  loss  to  perceive  on  what 
principle  itcau  be  claimed  that  an  apparent  naked  authority 
is  more  effectual  to  bind  the  party  giving  it  than  an 
apparent  ownership  as  well  as  authority." 

§  321.  THE  SUB-PLEDGE  or  STOCK  CERTIFICATES  IN- 
DORSED IN  BLANK. — The  ussage  of  indorsing  certificates  of 
stock  in  blank  renders  them,  although  not  negotiable  like 
the  favored  instruments  of  commerce,  but  so  far  quasi- 
negotiable  that,  under  the  application  of  the  rules  of 
equitable  estoppel,  they  pass  from  hand  to  hand  in  bona  fide 
transactions  of  loan  free  from  antecedent  equities.  An 
irrevocable  power  of  attorney  executed  in  blank  by  the 
owner  in  whose  name  the  certificate  of  stock  is  issued,  enures 
to  the  benefit  and  advantage  not  only  of  the  first  holder  of 
such  certificate  for  value,  in  good  faith,  without  notice,  to 
whom  it  may  be  delivered,  but  as  in  the  case  of  commercial 
paper  indorsed  in  blank  or  payable  to  bearer,  every  subse- 
quent holder  for  value  is  entitled  to  the  privileges  resulting 

return  of  the  stock  from  the  bank,  not  been  rendered  nor  demand  marie, 

upon  payment  of  the  amount  due  The  lower  court  decided  in  favor  of 

upon  his  account,  about  $3,000,  the  the  pledgor,  and  the  case  was  twice 

bank's  interest  in  the  stock,  after  de-  argued  in  the  Court  of  Appeals,  the 

ducting  the  amount  realized  from  decision  supporting  the  rights  of  the 

the    other    collaterals,    being    over  bank  acquired  under  the  sub-pledge, 

$15,000.  The  shares  were  worth  $17,-  and  without  knowledge  of  the  pledg- 

000.     The  account,   however,   had  or's  title  to  the  stock. 


428          QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

therefrom.  Where  such  certificates  of  stock,  indorsed  in 
blank,  are  in  the  possession  of  a  pledgee,  who  sub-pledges 
the  same,  no  notice  or  knowledge  sufficient  to  put  such  sub- 
pledgee  upon  inquiry  is  presumed  from  the  fact  that  the 
certificate  is  in  the  name  of  another  person,  otherwise  the 
availability  of  stock  certificates  as  collateral  would  be  in 
great  part  destined.1 

A  indorses  in  blank  and  delivers  to  B  certificates  of 
stock  as  collateral,  upon  which  he  obtains  a  loan.  B.  sub- 
pledges  the  certificates  to  C  for  value,  who  again  sub- 
pledges  them  to  D,  the  indorsement  remaining  blank.  The 
last  pledgee  D,  if  a  holder  for  value,  in  the  usual  course  of 
business,  has  a  good  title  against  everybody.* 

§  322.  SUB-PLEDGES  OP  STOCK  CERTIFICATES. — The 
sub-pledge  of  stock  certificates  held  by  pledgees  with  title  is 
supported  where  made  upon  an  advance,  or  other  valuable 
consideration,  in  good  faith,  without  notice,  although  the 
pledgee  may  be  chargeable  with  notice  of  misappropriation. 
A  pledge  of  stocks  belonging  to  an  estate  was  made  by 
one  of  several  executors  to  stockbrokers  as  collateral  secu- 
rity for  his  own  indebtedness  upon  stock  speculations,  with 
power  of  attorney  signed  "A.,  acting  executor."  The 
brokers,  who  were  chargeable  with  notice  of  the  misappro- 
priation, sub-pledged  the  stock  for  a  loan  made  in  good  faith, 
without  notice.  The  fraud  being  discovered,  the  remaining 
executors  sought  in  equity  to  recover  the  stocks  from  the 
sub-pledgees.  They  were  only  given  relief  upon  the  equit- 
able terms  of  paying  the  full  advances  of  the  sub-pledgee.1 

The  technical  doctrine  of  lis  pendens  is  not  enforced  to 
defeat  the  title  of  a  sub-pledgee  of  certificates  of  stock  for 

1  Wood's   App.  92  Pa.    St.   379;  In  re  Tahiti  Cotton  Co.  L.  R.  17 

Felt  v.   Heye,   23    How.  Pr.    359 ;  Eq.  273. 

Leavitt  v.  Fislier,  4  Duer.  1 ;  Kort-  s  Gould  v.  Farmers'  Loan  &  Trust 

right    v.     Commercial     Bank,     20  Co.,  23  Hun,  322. 

Wend.  91;    McNeil  e.  Fourth  Nat.  'Wood's  App.  92  Pa.  St.  379. 
Bank,  46  N,  Y.  825  (Rapallo,   J.). 


THE   SUB-PLEDGE   OF   STOCKS.  429 

value,  without  notice.  Upon  discovery  of  a  previous  mis- 
appropriation of  stocks  of  an  estate  by  an  executor,  a  court 
of  equity  appointed  a  new  trustee.  The  court  was  about  to 
order  the  company  to  transfer  the  stocks  to  the  trustee,  but 
before  the  entry  thereof,  the  executor  indorsed  the  certifi- 
cates in  blank,  and  passed  them  to  a  third  person  for  value 
advanced,  who  sub-pledged  them  for  a  loan.  Upon  default, 
the  sub-pledgee  sold  the  stocks,  but  the  company  gave 
public  notice  that  there  were  no  such  stocks,  and  the  pledgee 
had  to  buy  them  himself.  The  company  still  refusing  to 
transfer,  the  sub-pledgee  recovered  the  full  amount  of  his 
damages.1 

Stocks  pledged  upon  a  loan  of  money  were  sub-pledged 
for  value,  and  on  the  same  day  were  again  sub-pledged  with 
other  collaterals  for  a  loan  and  as  collateral  security  for  an 
antecedent  debt,  without  more.  The  second  sub-pledgee, 
so  far  as  he  had  made  a  bona  fide  advance,  was  protected  as 
a  holder  for  value  in  the  usual  course  of  business ;  as  to  the 
past  indebtedness,  the  transaction  occurring  in  New  York, 
he  was  subject  to  equities.  The  first  pledgee  paid  the  full 
value  of  the  stock  to  redeem  it,  and  was  allowed  to  recoup 
himself  from  the  sale  of  the  other  collaterals,  after  the  second 
sub-pledgee  had  repaid  himself  his  actual  advances,  upon 
which  he  was  a  holder  for  value  of  the  securities.1 

It  is  no  defense  to  a  customer  as  against  a  suit  brought 
for  the  price  of  stocks  bought  by  a  broker  that,  under  the 
well-established  usage  of  stockbrokers  to  use  stocks  which 
they  are  carrying  as  collateral  to  raise  money  to  continue 
their  business,  that  a  sub-pledgee  of  such  stocks,  upon  de- 
fault, had  sold  the  stocks.  The  failure  of  the  broker  to 
redeem  being  a  default  in  a  subsequent  duty,  the  liability  of 
the  customer  continued.  The  latter,  however,  might  recoup 
his  damages.1 

1  Holbrook  v.  New  Jersey  Zinc  Co.      Hun.  322  ;  Stenton  v.  Jerome,  54  N. 
57  N.  Y.  616.  Y.  480. 

*  Gould  v.  Farmer's  L.  &  T.  Co.  23         3Capron  v.  Smith,  86  K  Y.  418 ; 

Grumau  v.  Smith,  82  Ib.  25. 


430          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

As  no  notice  is  charged  from  the  use  of  the  words  "as 
trustee  "  in  mining  stocks,  and  no  presumption  as  to  the 
existence  of  any  cestui  que  trust  arises  therefrom,  a  pledgee 
holding  such  stocks  as  collateral  for  stock  speculations,  may 
sub-pledgee  the  same  for  a  loan  and  future  advances.  Where 
this  is  done,  the  pledger  and  owner  is  bound  to  the  pledgee 
for  the  full  amount  of  the  loan  and  advances  until  notice  of 
the  pledger's  interest.1 

§  323.  THE  MASSACHUSETTS  RULE  AS  TO  SUB-PLEDGES 
OP  STOCK  CERTIFICATES. — In  Massachusetts,  the  rule  is 
established  that  a  pledgee  of  stock  holding  certificates  of 
stock  under  written  assignment  and  blank  power  of  attor- 
ney indorsed  thereon  may  cause  a  transfer  to  be  made  upon 
the  books  of  the  company  either  to  himself,  or  to  some  other 
person  as  trustee,  so  as  to  protect  the  title  and  possession 
to  the  collaterals.  Such  a  right  on  the  part  of  the  pledgee 
is  necessarily  implied.9  The  pledgee,  however,  is  not  per- 
mitted, under  statutory  enactments,  to  sell  or  loan  or  pledge 
the  stock  thus  held  as  collateral,  but  is  required  to  retain  the 
same  in  his  possession,  so  that  upon  the  maturity  of  the 
debt,  or  at  any  time  afterwards  before  a  proper  sale,  he  may 
be  in  a  position,  upon  pa}Tment,  to  restore  such  stock 
to  the  pledger.8  Certificates  of  stock  held  as  collateral, 
under  a  blank  power  of  attorney,  absolute  in  terms,  the 
receipt  given  therefor  showing  it  to  be  held  as  collateral 
security  for  a  loan,  were  transferred  by  the  pledgee  to  his 
own  creditor  in  order  to  fulfil  a  prior  contract  for  borrowed 
stock.  Such  a  transfer  operated  as  a  conversion  of  the  stock. 
The  pledgee,  upon  failure  to  pay  the  loan,  sold  the  same 
number  of  like  shares  of  stock  and  sued  for  the  balance  of 
the  debt  unsatisfied.  The  pledger  was  allowed,  in  such 
action,  to  set-off  the  wrongful  conversion,  and  to  recover 

1  Gass  v.  Hampton,  16  Nev.  185.  'Fowle  t>.  Ward,   113  Mass.  548 ; 

*Day  v.  Holmes,  103  Mass.    306;      Fay  e.  Gray,  124  Ib.  500 ;  Hathaway 
Fay  v.  Gray,  124  Ib.  500.  t>.  Fall  River  Bank,  131  Mass.  14, 


THE   SUB-PLEDGE   OF   STOCKS.  431 

the  difference  between  the  value  of  the  stock  at  the  time  of 
the  conversion  and  the  amount  due  on  the  note,  and  had  a 
judgment  for  the  difference.1  Nor  is  it  any  excuse,  in  Mas- 
sachusetts, fora  wrongful  sale  or  pledge  of  such  stock  that 
the  pledgee  has  always  held  a  sufficient  number  of  like 
shares  to  return  to  the  pledger  upon  payment  of  the  debt 
secured.8  But  it  is  not  a  conversion  of  stock  where  a 
transfer  of  the  certificates  is  made  to  third  parties  while  held 
as  collateral  for  the  purpose  simply  of  avoiding  injury  to  the 
credit  of  the  pledgee  who  received  the  certificates  in- 
dorsed, and  was  ready  to  return  them  to  the  pledger  upon 
payment.8 

§  324.  SUB-PLEDGES  UPON  VOID  LOANS  AND  ANTECE- 
DENT DEBTS,  WHEN  SUBJECT  TO  EQUITIES. — No  title  is  con- 
veyed, as  against  the  pledgor,  where  the  sub-pledgee  of 
certificates  of  stock,  properly  indorsed,  is  based  upon  a 
transaction  of  loan  between  the  pledgee  and  sub-pledgee 
tainted  with  usury  and  void  by  statute.  The  sub-pledgee 
receiving  stock  certificates  upon  such  void  loan  is  not 
a  holder  for  value  in  the  usual  course  of  business.  If 
any  recovery  can  be  had,  as  where  such  contracts  are  void- 
able only,  the  sub-pledgee  is  subject  to  prior  equities.4  A 
borrowed  money  from  B  on  stock  certificates  indorsed  in 
blank,  and  B  sub-pledged  them  to  C,  who  was  without 
notice  of  A's  rights,  for  a  loan  to  himself,  retaining  the 
principal  notes.  The  loan  made  by  the  sub-pledgee  was 
tainted  with  usury.  Upon  default,  the  sub-pledgee  sold  the 
collaterals.  The  pledgor  sued  to  recover  either  the  stock 
or  the  proceeds  thereof,  and  took  judgment,  an  attempt  to 
set-off  the  debt  due  to  the  pledgee  not  being  allowed,  as 

'Fay®.  Gray,  124  Mass.  500.  "in  order  that  what  was  intended 

8  Ibid.  as  a  security  might  not  become  a 

*Day  v.  Holmes,  103  Mass.  306.  burden."  Heath  v.  Griswold,  18 

Nor  was  it  a  conversion  of  the  stock,  Blatchf.  555. 

where  a  pledgee  of  shares  placed  the  4Leitch  t>.  Wells,  48  N.  Y.  593. 

eame  in  the  name  of  a  third  person, 


432         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

the  negotiable  securities  had  not  been  transferred  with  the 
collaterals,  and  non  constat  might  still  be  in  the  hands  of 
the  pledgee  or  a  third  person,  a  holder  for  value,  without 
notice.1 

In  jurisdictions  where  the  restricted  rule  is  followed 
that  an  indorsement  and  delivery  of  negotiable  collaterals 
as  security  for  the  payment  of  an  antecedent  debt,  without 
further  consideration,  is  not  sufficient  to  constitute  the 
pledgee  a  holder  for  value,  in  the  usual  course  of  business, 
a  sub-pledgee  receiving  certificates  of  stock,  although  with 
the  legal  title  and  apparent  ownership,  as  collateral  security 
for  an  antecedent  debt  merely,  without  any  extension  of 
time  for  the  payment  of  the  principal  debt,  or  other  valua- 
ble consideration,  is  not  a  holder  for  value,  in  the  usual 
course  of  business,  so  as  to  come  within  the  rules  of  equita- 
ble estoppel  announced  in  the  leading  case  of  McNeil  v. 
Tenth  National  Bank.*  This  limited  rule,  subjecting  sub- 
pledgees  to  secret  equities,  was  enforced  in  a  case  where 
a  loan  was  obtained  through  an  agent  of  a  trust  company, 
upon  the  discount  of  a  note,  and  certain  stocks,  bonds  and 
mortgages,  and  other  securities,  as  collaterals.  The  agent 
afterwards  sub-pledged  the  note  and  securities  to  a  third 
person  as  collateral  security  for  a  pre-existing  debt,  without 
further  consideration.  As  the  sub-pledgee  received  the 
securities  subject  to  equities  between  the  pledgor  and  the 
trust  company  by  reason  of  want  of  consideration, 
he  was  charged,  in  seeking  to  enforce  the  mortgage  se- 
curity, with  the  value  of  the  stock  certificates,  as  the 
mortgage  was  given  as  a  further  security  to  the  stock,  and 
having  parted  with  the  latter,  its  return  upon  payment  had 
been  rendered  impossible.1 

§  325.  SUB-PLEDGES  UNDER  A  LIMITED  TITLE. — It  is 
an  essential  element  of  the  application  of  the  rule  of 

'Felt   c.    Heye,     23     How.    Pr.      Guss  v.  Hampton,  supra;  and  Gould 
359.  t>.  Farmer's  L.  &  T.  Co.  23  Hun,  322. 

•  Weaver  t.  Bardcn,  49  N.  Y.  325;         «  Ashton's  App.  73  Pa.  St.  153. 


THE  SUB-PLEDGE   OF  STOCKS.  483 

equitable  estoppel,  which  protects  an  innocent  sub- 
pledgee  loaning  money  to  a  pledgee  who  has  been  entrusted 
with  certificates  of  stock,  indorsed  by  the  pledger,  that  the 
transaction  of  loan  shall  be  founded  upon  the  credit  of  the 
legal  title  and  apparent  ownership  of  the  pledgee.  If  there 
be  no  pretension  on  the  part  of  the  pledgee  of  ownership  of 
such  stock  certificates,  and  the  loan  is  made  avowedly 
as  for  a  third  person,  the  original  pledger  and  owner,  the 
latter  is  not  within  the  rule  of  estoppel  in  pais  stated, 
nor  can  the  sub-pledgee  enforce  his  stock  collateral  as 
against  the  owner,  for  any  sum  in  excess  of  the  principal 
debt  for  the  payment  of  which  the  stock  was  first  pledged. 
Under  the  circumstances  stated,  the  sub-pledgee  is  charge- 
able with  notice  that  the  power  of  the  pledgee  may  be 
limited,  and  his  advances  to  an  amount  greater  than  the 
principal  debt  are  made  at  his  peril.  This  rule  was  en- 
forced where  a  broker  loaned  $3,000  on  a  certificate  of 
stock,  which  he  received  unindorsed.  Upon  applying 
himself  for  a  loan  upon  the  stock,  he  found  it  was  neces- 
sary, to  make  his  collateral  available,  that  the  certificate 
should  be  indorsed.  A  loan  applied  for  by  the  broker  as 
for  a  customer,  was  refused  him  until  this  was  done.  The 
pledgor  was  induced  to  indorse  the  certificate  by  the  repre- 
sentation of  the  pledgee  that  he  needed  it  for  his  own  se- 
curity. Upon  the  certificate  thus  indorsed,  the  sub-pledgee 
made  a  loan  of  $8,000,  ostensibly  for  a  customer  of  the 
pledgee,  as  stated.  The  sub-pledgee  sought,  upon  default, 
to  foreclose  his  lien  upon  the  stock,  but  as  against  the 
pledgor,  he  was  restricted  to  a  recovery  of  the  amount  of 
the  first  loan.1  A  sub-pledgee  can  take  no  better  title  to 
the  stock  itself  as  represented  by  the  certificates  than  the 

1  Merchant's  Bank  v.  Livingston,  sub  pledgee,  for  value,  without 
74  N.  Y.  223.  The  court,  however,  notice,  from  a  pledgee  holding  them 
recognize  the  general  rule  as  to  the  under  indorsement  in  blank,  with 
more  extended  right  which  may  be  the  legal  title  and  apparent  owner- 
acquired  over  such  collateral  securi-  ship,  and  claiming  to  be  the  owner, 
ties,  where  they  are  received  by  a 
28 


434         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

owner  had  at  the  time  of  the  sub-pledge.  Where  at  such 
time  of  sub-pledge,  the  pledger  has  only  paid  forty  per 
cent,  of  the  face  of  the  stock,  a  sub-pledgee  is  a  purchaser 
for  value  in  the  due  course  of  business  to  the  extent  only 
of  its  then  value.  Nor  will  a  subsequent  payment  on  and 
change  of  the  form  of  stock  increase  the  sub-pledgee's  in- 
terest therein.1 

§  326. — APPLICATION  BY  SUB-PLEDGEE  OF  PROCEEDS 
FROM  COLLATERALS. — The  sub-pledgee  of  certificates  of 
stock  is  subject  to  equitable  rules  as  to  the  application  of 
proceeds  from  collateral  securities,  in  cases  where  he  holds 
certificates  of  stock  owned  by  different  pledgers,  and  there- 
tofore received  as  collateral  security  by  the  several  pledgees. 
The  pledgers  of  such  stock  may  require,  in  equity,  that 
such  securities  shall  be  applied  by  the  sub-pledgee  paripassu 
in  payment  of  the  loan.  Such  sub-pledgee  is  not  allowed  to 
favor  the  collateral  stocks  of  one  pledger  at  the  expense  of 
others,  by  an  intentional  discrimination  in  the  sale  thereof. 
Where  this  has  been  done,  the  equitable  principle  of  sub- 
rogation is  resorted  to,  although  the  sub-pledgee  has  acted 
without  notice  of  the  claims  of  the  several  pledgers. 
If  by  the  sale  of  the  collateral  stocks  of  one  or  two  of  the 
pledgers,  enough  has  been  realized  to  discharge  the  claims 
of  the  sub-pledgee,  and  other  securities  remain  in  his  hands, 
equity  will  order  a  sale  of  the  whole,  so  that  each  pledger 
may  bear  his  pro  rata  share  of  the  common  burden.9  A  firm 
of  stock  brokers,  carrying  stocks  of  different  customers  upon 
margins  as  collateral  security  for  the  payment  of  the  purchtise 
price  at  the  appointed  time  of  delivery,  sub-pledged  such 
stocks  to  different  persons  as  security  for  advances.  As  no . 
customer  was  able  to  identify  his  individual  stock  as  being 
in  the  hands  of  any  particular  sub-pledgee,  any  relief  was 
impossible ;  but  in  cases  where  identification  of  the  stock 


1  Cherry  v.  Frost,  7  Lea,  1.  » Gould  v.  Central  Trust    Co.   6 

Abb.  N.  Cas.  381. 


THE   SUB-PLEDGE   OF   STOCKS.  435 

could  be  made,  the  customers  were  allowed  to  folio  wit,  and  if 
sold  by  the  sub-pledgee,  to  claim  the  proceeds.1  A  sub- 
pledgee  from  a  sub-pledgee  received  certificates  of  stock  of 
several  parties  as  collateral  security,  partly  for  a  special 
loan  to  the  sub-pledgee,  and  partly  for  an  antecedent  debt 
without  more,  and  was  not  as  to  the  latter,  under  the  New 
York  rule,  a  holder  for  value,  in  the  usual  course  of  business. 
One  of  the  pledgees,  whose  collateral  securities  was  thus  sub- 
pledged,  was  obliged  to  pay  the  full  value  of  the  stock,  in 
order  to  return  the  same  to  his  pledger.  As  a  surplus  re- 
sulted from  the  sale  of  the  other  collaterals,  after  paying 
the  bona  fide  advance  of  the  second  sub-pledgee,  the  bene- 
fit thereof  was  given  the  pledgee,  as  against  the  claim  of 
the  sub-pledgee,  on  account  of  the  antecedent  debt.9 

§  327.  THE  BROKER'S  USE  OF  CusTOMEpk\s  STOCK  CER- 
TIFICATES.— Stockbrokers,  who  have  purchased  shares  of 
stock  for  a  customer,  upon  a  contract  to  buy  and  carry  for 
a  certain  time,  the  brokers  holding  the  certificates  represent- 
ing the  shares  of  stock  and  the  customers  furnishing  margins, 
are  entitled,  by  commercial  custom,  to  use  the  particular 
certificates  of  stock  so  purchased  and  transferred  to  them, 
by  way  of  sale,  loan  or  pledge.  Shares  of  stock  of  com- 
panies quoted  on  the  Stock  Exchanges  of  the  country,  have 
no  particular  value  one  over  the  other,  and  no  reason  exists 
for  retaining  any  particular  certificate  received  upon  a  pur- 
chase. Stockbrokers,  however,  are  generally  required  to 
retain  enough  shares  of  any  given  stock  so  that  they  may 
be  able  to  complete  their  contracts  with  their  customers  at 
any  time  agreed.  The  right  to  sell,  loan,  or  pledge  stocks 
carried  for  a  customer  does  not  include  the  right  to  specu- 
late with  it.s  The  same  rule  is  applied  as  to  the  want  ol 

1  Chamberlain  v.  Greenlcaf,  4  Abb.  Stewart  v.  Drake,  46  Ib.  449;  Allen 
N.  Cas.  178.  v.   Dykers,   3  Hill,  593;  s.  c.  7  Ib. 

2  Gould  v.  Farmers'  L.  &  T.  Co.  497;  Frostfl.  Clarkson,  7  Cow.  24; 
23  Hun.  322.  Wynkoop  v.  Leal,   64   Pa.  St.  361; 

8  Levy  v.  Loeb,    85  N.    Y.  370;      Hubbell  v.  Drexel,  11  Fed.  Rep.  115; 
Lawreuce  v.  Maxwell,   53  Ib.  19  ;      Price  v.  Grover,  40  Md.  102. 


436          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 


identity,  or  the  absence  of  "  ear  marks,"  in  the  case  of  gold 
certificates1  and  warehouse  receipts  for  grain  and  other 
commodities.*  The  duties  of  the  parties  to  the  contract  of 
pledge,  as  between  the  broker  and  his  customer,  and  the 
use  of  the  certificates  of  stock,  may  be  governed  by  agree- 
ment. Where  such  contracts  are  made  in  good  faith,  and 
not  against  public  policy,  nor  in  contravention  of  any 
statute,  courts  enforce  them.* 


1  Merchant's  Bank  ».  State  Bank, 
10  Wall.  604. 

'Bailey  ®.  Bensley,  87111.  556. 

•Baker  v.  Drake,  66  Ib.518;  Law- 
rcnce  v.  Maxwell,  53  Ib.  19;  Stenton 
t>.  Jerome,  54  Ib.  480;  Taussig  v. 
Hart,  58  Ib.425;  Ogden  v.  Lathrop, 
66  I  b.  158;  Levy  v.  Loeb,  85  Ib.  370; 
Hubbell  v.  Drexel,  11  Fed.  Rep.  115. 


Where  an  express  agreement  is  en- 
tered into  by  the  parties  requiring 
the  broker  to  keep  on  hand  the 
stocks  or  bonds  purchased,  a  substan- 
tial compliance  therewith  must  be 
shown  before  the  broker  can  recover 
from  his  principal.  w  Hardy  v.  Jau- 
don,  41  N.  Y.  619;  s.  c.  1  Kobt.  261. 


THE  PLEDGEE'S  SALE  OF  STOCKS.  437 


CHAPTER  XXXIII. 

THE  SALE  OF  COLLATERAL  STOCKS. 


§328.  The  pledgee's  sale  of  stocks,  upon  default. 

329.  The  pledgee's  right  of  sale  under  contract. 

330.  localization  of  pledged  stock,  by  trustees  for  pledger. 

331.  The  requirements  of  valid  notice  and  sale. 

332.  The  pledgee,  upon  his  sale  of  stocks,  cannot  purchase. 

333.  The  title  of  the  bona  fide  purchaser  at  pledgee's  sale. 

334.  Sale  by  broker  carrying  stocks,  upon  default — waiver  of  notice. 

335.  The  broker's  delay  in  sale,  no  defense  against  suit. 

336.  Measure  of  damages  for  wrongful  sale  by  brokers. 

337.  Measure  of  such  damages  in  New  York  and  Pennsylvania. 

338.  The  pledgor  entitled  to  profits  on  unauthorized  sale. 

339.  The  broker's  right  of  set-off  against  damages  for  conversion. 


§  328.  THE  PLEDGEE'S  SALE  OF  STOCKS,  UPON  DE- 
FAULT.— The  pledgee  holding  certificates  of  stock  indorsed 
with  a  power  of  attorney  to  transfer  signed,  as  collateral 
security  for  a  loan  or  discount  of  commercial  paper,  is  en- 
titled to  sell  such  collaterals,  at  public  sale,  upon  default  of 
the  pledgor,  after  due  demand,  and  notice  of  the  time  and 
place.  Having  the  legal  title  to  the  collateral  securities, 
the  pledgee  is  able  to  make  them  available,  as  the  pur- 
chaser at  such  sale  has  a  right  to  demand,  as  had  the 
pledgee,  transfer  of  the  shares  of  stock  to  his  own  name 
on  the  books  of  the  company,  and  to  obtain  new  certificates.1 
Sub-pledgees  of  stock  certificates,  holding  the  same  for 
value,  are  also  entitled  to  sell  such  collateral  securities, 

'Nahring  n.  Bank  of  Mobile,  58  106111.433;  Langton  v.  Waite,  L."R. 
Ala.  204;  Stevens  ».  Hurlburt  Bank,  6  Eq.  165;  France  v.  Clark,  L.  R. 
31  Conn.  146;  Denton  v.  Jackson,  22  Ch.  D.  830;aff.  26  Ib.  257. 


438         QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

upon  demand  and  notice.1  A  private  sale  is  not  permitted 
to  be  made,  even  under  contract,  much  below  the  current 
market  quotation  for  the  stock.  Such  a  sale  is  open  to  in- 
quiry and  suspicion.8  A  stockbroker  has  the  right  to  sell 
stocks  which  he  has  bought  for  a  customer,  upon  the  latter 
advancing  margins,  where,  upon  a  subsequent  depreciation 
in  the  market  value  of  the  stocks,  the  customer  fails,  upon 
demand,  to  keep  good  such  margins  as  agreed.  The 
broker  may  decline  to  carry  the  stocks  any  longer,  and  sell 
the  same  at  his  pleasure,  without  notice.  The  advances 
made  by  the  stockbroker  being  about  ninety  per  cent,  of 
the  purchase  price  of  the  stock,  his  right  of  sale,  upon  de- 
fault of  the  customer  to  put  up  further  margins,  accrues  at 
once.8  The  commission  merchant,  advancing  money  for  the 
purchase  of  property  consigned  to  him  has  the'right  to  sell 
the  same  at  such  time  as  he  sees  proper,  to  the  extent  and 
in  payment  of  his  advances.4 

A  pledgee  of  certificates  of  stock  of  a  national  bank, 
after  transfer  had  been  obtained  on  the  books  of  the  bank, 
sold  the  same  under  a  power  contained  in  the  contract  of 
pledge.  His  right  of  sale  was  not  allowed  to  be  ques- 
tioned by  the  pledger,  nor  his  representatives,  although  the 
sale  was  made  to  relieve  the  pledgee  of  liability  from  the 
impending  bankruptcy  of  the  bank.5  Stocks  were  pledged 
aj  collateral  security  for  the  payment  of  a  note  due  in 

1  Gould    v.    Farmer's    Loan    and  makes  default,   upon    demand    for 

Trust  Co.  23  Hun,  322;  In  re  Bon-  further  margins,  will  have  no  cause 

ney,  8  Daly,  75.  for  complaint  that  the  broker  ceases 

'Nahring  v.  Bank  of  Mobile,  58  to  hold  and  carry  it,  but  sells  the 

Ala.  204.  same  without  notice." 

•Hubbell  v.  Drexel.  11  Fed.  Rep.  4Butterfleld  v.  Stevens,  59  Iowa, 

115;  Dando's  App.  94  Pa.   St.  76;  596;    Corbett    v.    Underwood,     82 

Stevens  v.  Hurlburt  Bank,  31   Conn.  111.  324;  Moeller  v.  McLasan.  60  Ib. 

16;    Covell  v.  Loud,  135  Mass.  41.  317;    Denton   v.  Jackson,    106   Ib. 

The  court  (Devens  J.)  say:    "  Upon  433;  Weed  v.  Adams,  37  Conn.  378, 

an  agreement  to  keep  a  margin  good  Howard  v.   Davis,  40    Mich.    546; 

to  a  certain  percentage  of  the  cur-  Brown  v.  Graw,  14  Pet.  479 ;  Field  v. 

rent  market  value  of  the  stock  from  Farrington,  10  Wall  141. 

time  to  time,   the  customer,  if  he  'Magruder  v.  Colston,  44  Md.  349. 


THE  PLEDGEE'S  SALE  OF  STOCKS.  439 

ninety  days,  under  a  contract  by  which  the  pledgee  agreed 
to  hold  the  stocks  the  same  time.  The  pledgee  was  allowed 
to  sell  the  stocks  at  the  expiration  of  the  time  stated,  al- 
though the  note  representing  the  loan  was  entitled  to  three 
days  of  grace.1  A  sale  of  stocks  under  a  contract  of  pledge 
made  by  a  married  woman  for  a  loan  of  money  to  herself 
and  her  husband,  although  none  of  the  money  was  used  for 
necessaries  or  for  her  separate  estate,  cannot  be  disputed 
when  made  in  good  faith,  in  accordance  with  the  terms  of 
the  contract.* 

§  329.  THE  PLEDGEE'S  SALE  OF  STOCKS,  UNDER  CON- 
TRACT.— Contracts  of  pledge  of  stock  certificates,  entered 
into  by  persons,  under  which  a  power  of  sale  of  the  securi- 
ties upon  default  is  given  the  pledgee,  are  valid.  The  only 
requirement  is,  that  the  pledgee  shall  act  in  good  faith  in 
such  realization  of  the  collateral  securities.  The  pledgor 
has  no  cause  for  complaint,  so  long  as  the  sale  of  his  property 
is  conducted  honestly  and  according  to  the  contract  of 
which  he  is  a  party.3  A  sale  of  stock  below  the  market 
price,  under  power  of  sale  given  in  the  contract,  is  not 
enough  of  itself  to  charge  a  broker  with  the  difference,  unless 
it  be  clearly  shown  that  such  sale  was  made  with  intent  to 
injure  and  defraud  the  pledgor.  Such  negligence  or  want 
of  care  must  be  shown  in  the  mode  or  time  or  place  of  sale 
as  to  raise  a  conclusive  presumption  of  the  intent  to  injure 
the  interests  of  the  pledgor,  if  it  is  sought  to  charge  the 
pledgee  with  liability  for  loss.4  If  the  pledgor  has  entered 
into  contract  giving  a  power  of  sale  of  his  collaterals  upon 
default,  it  is  no  objection  to  such  sale  that  he  fears  that  such 
securities  may  be  sold  at  a  great  sacrifice.8 

Upon  the  insolvency  of  the  pledgor,  the  pledgee  of  stock 
certificates  holding  them  as  collateral  security  for  a  call 

Nankin  v.  McCullogh,  12  Barb.  Hubbell  v.  Drexel,  11  Fed.  Rep.  115. 

103.  4Durant  v.  Einstein,  35  Abb.  Pr. 

9  Dando's  App.  94  Pa.  St.  76.  223. 

8  Vail  v.  Hamilton,  85  K  Y.  453;  *  Rascb  v.  Creditors,  1  La.  Ann.  31. 


440          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

loan,  is  entitled  to  sell  his  securities,  paying  any  surplus  into 
court  for  the  benefit  of  those  concerned.1  And  stockbrokers 
who  have  advanced  their  own  money  to  purchase  stocks  for 
their  customers,  may,  upon  the  insolvency  or  bankruptcy  of 
their  customer,  close  the  transaction,  and  sell  out  the  stock 
without  notice,  and  may  claim  against  the  estate  for  any 
balance,  holding  any  surplus  for  the  benefit  of  its  represen- 
tatives.' The  assignee  of  an  insolvent  pledger  may  require 
stock  held  as  collateral  security  by  a  creditor  to  be  sold,  and 
such  distribution  of  the  proceeds  to  be  made  as  a  court  of 
equity  may  direct.8  And  where  a  pledgee  holding  certifi- 
cates of  stock  in  trust  for  the  pledger,  was  compelled  to  pay 
the  full  value  thereof  to  an  assignee  in  bankruptcy  of  the 
pledger,  such  payment  gave  him  the  legal  title  to  the  stock 
as  against  the  pledger.4 

§  330.  REALIZATION  OF  PLEDGED  STOCKS,  BY  TRUS- 
TEES FOR  PLEDGEE. — Certificates  of  stock  were  deposited 
by  way  of  collateral  security,  transfers  being  made  on  the 
books  of  the  company  to  the  names  of  trustees,  the  certifi- 
cates being  delivered  to  the  pledgee.  The  contract  of 
pledge  provided  that,  upon  default  in  payment  of  the  loan 
or  of  interest,  the  pledgee  should  have  the  right  to  sell  such 
shares,  and  apply  the  proceeds  in  satisfaction  of  the  debt. 
The  transaction,  constituting  a  mortgage  of  the  shares,  and 
the  legal  title  vesting  in  the  pledgee,  upon  default  in  pay- 
ment, a  foreclosure  of  the  shares  was  decreed,  with  a  short 
time  for  redemption/  A  written  assignment  of  stocks  to  a 
trustee  empowered  to  sell  enough  at  discretion  to  discharge 
a  note  due  to  a  third  person,  if  the  interest  thereon  is  not 
paid  at  a  specified  day,  being  a  trust  to  sell,  the  transferrer 


1  In  re  Ginnell,  9  N.  B.  R.  137.  •  General   Credit  &  Dis.  Bank  v. 

»  Lacey  t>.  Hill,  L.  R.  8  Ch.  921.  Glegg,  L.  R.  22  Ch.  D.  549;  Red- 

1  Yeatman  v.  Savings  lust.  95  U.  S.  m:vyne  v.  Foster,  L.R.  2  Eq.  467 ;  see 

764.  Carter  v.  Wake,  L.  R.  4  Ch.  D.  605. 
4  Thompson  t>.  Tollund,  43  Cal.  99. 


THE  PLEDGEE'S  SALE  OF  STOCKS.  411 

of  the  stocks  to  such  trustee  is  not  entitled  to  demand  or 
notice  before  sale.1 

§  331.  THE  REQUIREMENTS  OF  A  VALID  NOTICE  AND 
SALE. — Reasonable  notice  as  to  time  and  place  of  sale  is  re- 
quired of  the  broker  holding  stock  certificates  as  collateral 
security,  with  margins  of  the  customer,  for  advances  made 
in  the  purchase,  and  of  the  pledgee  receiving  such  stock 
certificates  as  collateral  upon  a  loan  or  discount  of  com- 
mercial paper,  before  a  valid  sale,  in  the  absence  of  a  special 
contract,  can  be  made.  The  notice  should  state  the  day, 
time,  and  place  of  sale  with  clearness  ;  but,  as  the  purpose 
of  giving  notice  is  to  inform  the  pledger  of  the  sale,  and 
give  him  an  opportunity  to  be  present  and  guard  his  interests, 
if  this  is  practically  accomplished  in  good  faith,  the  mode  or 
manner  of  such  notice  is  immaterial.2  Notices  of  sale  for 
two  days,8  or  five  days,4  or  seven  days,5  are  reasonable. 
Such  sales  of  stock  are  valid  when  made  on  the  Stock  Ex- 
change of  the  city  in  which  the  transaction  of  pledge  has 
taken  place.  A  better  opportunity  is  thus  offered  to  secure 
the  current  value  of  the  stock  than  at  a  public  auction.6  In 
early  cases  in  New  York  it  was  held  that  a  sale  at  the  Stock 
Exchange  was  not  within  the  definition  of  a  public  sale,  but 
such  sales  are  now  supported.1  The  burden  of  proof  is 

1  Murdock  «.  Columbus  Ins.  Co.  889;  Bryan  ».  Baldwin,  7  Lans.  174. 

59  Miss.  152;  Milliken  v.  Dchon,  27  4  Vose  v.  Florida  Ry.  Co.  50  KY. 

N.  Y.  364.  369,  373. 

8  Conyngham's  App.  57  Pa.  St.  e  Maryland,  Fire  Ins.  Co.  v.  Dal- 
474;  Vanliorne  v.  Gilbough,  10  W.  rymple,  25  Mel.  242. 
N.  C.  347;  Gruman  v.  Smith,  51  N.  «  Ravenstock  v.  Torney,  32  Md. 
Y.  25;  Cameron  «.  Durkheim,  55  Ib.  169;  Maryland  Fire  Ins.  Co.  v.  Dal- 
425;  Stenton  v.  Jerome,  54  Ib.  410;  rymple,  supra  :  Brown  v.  Ward,  3 
Stewart  v.  Drake,  46  Ib.  449;Cortel-  Duer,  660  ;  Sparkhawk  v.  Drcxel,  12 
you  v.  Lansing,  2  Caines'  Cas.  200;  N.  B.  R.  450,  470 ;  Warren  ».  Bran- 
Morris  Canal  &  Banking  Co.  v.  den  Manuf.  Co.  cited  in  Chcever  v. 
Lewis,  12  N.  J.  Eq.  3'23;  Child  v.  Meyer,  52  Vt.  75. 
Hugg,  41  Cal.  519  ;  Fletcher  v.  Dick-  '  Dykers  v.  Allen,  7  Hill,  497  ; 
inson,  89  Mass.  23.  Raiikin  v.  McCullogh,  12  Barb.  103; 

1  Stewart  v.  Drake,  46  N.  Y.  449  ;  Brass  v.  Worth,  40  Barb.  648;  Mark- 

Willoughby  v.  Comstock,   3  Hill,  ham  v.  Jaudon,  41  N.  Y.  235. 


442          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

upon  the  pledger  to  show  that  a  proper  place  for  the  sale 
lias  not  been  selected.1  His  failure  to  object  to  the  mode 
or  place  of  sale  within  a  reasonable  time  after  notice,  raises 
a  presumption  that  he  is  satisfied,  and  may  amount  to 
a  ratification.* 

V 

§  332.  THE  PLEDGEE,  UPON  HIS  SALE  OF  STOCKS,  CAN- 
NOT PURCHASE. — The  pledgee  of  certificates  of  stock  is 
within  the  rule  governing  pledgees  of  negotiable  collateral 
securities  that,  only  under  exceptional  circumstances,  is  he 
permitted  to  be  a  purchaser  at  his  own  sale,  or  at  a  public 
sale  of  such  stock  securities  by  a  third  person.  A  sale  of 
such  collaterals  by  a  pledgee  to  himself,  or  through  an  agent 
or  some  one  acting  in  his  interest,  is  a  breach  of  the  contract 
of  pledge,  contrary  to  good  faith,  and  the  pledger^  may  treat 
such  sale  and  purchase  as  a  conversion.3  The  pledgor  may 
elect  to  treat  such  purchase  by  a  pledgee  by  himself  or 
through  agents,  as  a  nullity,  as  in  no  way  affecting  the  rela- 
tions of  the  parties  to  the  contract  of  pledge,  and  upon 
payment  or  tender  of  the  principal  debt,  is  entitled  to 
redeem  such  collateral  securities.4  The  pledgor  may,  if  he 

1  Schepeler  v.  Eisner,  3  Daly,  11.  self.  Parsons  n.  Martin,  11  Gray, 

*  Vanhorne  v.  Gilbough,  10  W.  N.  Ill ;  Taussig  v.  Hart,  58  N.Y.  425. 

C.  347;  Kelsey  v.  Bank  of  Crawford          *  Bryan  ».  Baldwin,  52  N.  Y.  232; 

Co.  69  Pa.  St.  426.  Mott  v.  Havana  Bank,  22  Hun,  354; 

•Killianfl.  Hoffman,  6  Bradw.  200;  Duden  v.  Waitzfclder,  16  Ib.  337; 

Maryland  Fire  Ins.  Co.  v.  Dalrym-  Wright  v.  Ross,  36  Cal.  414  ;  Stokes 

pic,  25  Md.  342;  Marye  ».  Strause,  5  v.  Frazier,    72  111.   428;    Killian  v. 

Fed.  Rep.  483;  Carroll  v.  Mullanphy  Hoffman,  6  Bradw.  200;   Bank  v. 

Savings  Bank,  8  Mo.  App.  249,  254;  Dubuque  R.  R.   Co.  8  Iowa,  277; 

Middlesex  Bank  v.  Minot,  4  Met.  Middlesex  Bank  v.  Minot,  4  Met. 

325;  Bank  0.  Railroad  Co.  8  Iowa,  325;    Pickering    v.    Dcmcritt,     100 

277;  Stokes  e.  Frazier,  72  111.  428;  Mass.  416;  Day  «.  Holmes,  103  Ib. 

Canfield    v.   Minneapolis  etc.  Assn.  300 ;  Maryland  Fire  Ins.  Co.  v.  Dal- 

14   Fed.    Rep.  801;    Brookman  v.  rymplc,  25  Md.  242,   269;Bryson». 

Rothschild,    3    Sim.   155;     aff.   5  Ryner,  Ib.424;  Hestonvillc  R.R.Co. 

Bligh,  N.  S.  165  ;  Gillett  t>.  Pepper-  v.  Shields,  3  Brewst.  257 ;  Canfield  v. 

corne,  3  Bcav.  78  ;  Robinson  v.  Mol-  Minneapolis  etc.  Assn.  14  Fed  Rep. 

lett,  L.  R.  7  H.  L.  802.    Where  stock  501 ;  Kimber  c.  Barber,  L.  R.  8  Ch. 

is  delivered  to  a  broker  for  sale,  he  56 ;  Brockman  v.  Rothschild,  3  Sim. 

cannot  become  the  purchaser  him-  155. 


THE  PLEDGEE'S  SALE  OF  STOCKS.  443 

pleases,  ratify  such  sale.1  Where  the  transaction  of  loan, 
however,  is  between  brokers,  members  of  the  same  stock 
exchange,  and  the  stock  held  as  collateral  security  is  sold 
out "  under  the  rule,"  the  proceedings  partake  of  the  char- 
acter of  a  foreclosure,  and  the  pledgee  is  allowed  to  become 
the  purchaser.8 

§333.  THE  TITLE  OF  THE  BONA  FIDE  PURCHASER  AT 
PLEDGEE'S  SALE. — The  sale  and  delivery  of  certificates  of 
stock  held  by  a  pledgee  under  indorsement  in  blank,  so  that 
he  has  the  legal  title  and  apparent  ownership,  to  a  bona  fide 
purchaser  for  value,  without  notice  of  equities,  vests  in  the 
purchaser  a  good  title  to  the  shares  of  stock,  although  as 
between  the  pledgor  and  pledgee,  the  sale  of  such  stock  is 
unauthorized  and  tortious,  and  in  violation  of  the  contract 
of  pledge.  As  against  such  bona  fide  purchaser  for  value  paid, 
without  notice,  on  the  credit  of  the  title  and  apparent  owner- 
ship of  the  pledgee,  the  pledgor  is  not  allowed  to  set  up  claims 
to  the  certificates.  As  between  the  pledger  and  the  purchaser, 
no  privity  of  contract  or  relation  exists.8  The  rule  applies, 
under  like  circumstances,  to  the  title  of  bona  fide  purchas- 
ers, for  value,  without  notice,  where  the  sale  is  made  by  one 
holding  such  certificates  of  stock,  indorsed  in  blank,  as  sub- 
pledgee.4  A  delivery  of  certificates  of  stock,  indorsed  in 
blank,  was  made  as  collateral  security  for  an  advance,  but 
no  transfer  procured  as  required  by  the  charter  of  the  com- 
pany. The  pledgee  might  have  sub-pledged  the  stock,  but 
not  having  obtained  the  legal  title,  he  had  no  right  of  sale 
without  a  previous  demand  for  payment.  A  purchaser  for 
value,  but  chargeable  with  notice  of  the  facts,  can,  at  such 

1  Carroll    0.    Mullanphy    Savings  Fire  Ins.  Co.  v.  Dalrymple,  25  Md. 
Bank,  8  Mo.  App.  249,   and  cases  342;  Little  v.  Barker,   Hoffm.  Ch. 
supra.  487 ;  Talty  v.   Freedman's  Savings 

2  Quincy  v.  White,  63  N.  Y.  370.  Bank,  93  U.  S.  321 ;  Prall  v.  Tilt,  27 
376;  Newport  Bridge  Company  v.  N.   S.  Eq.  393;   Warren  v.  Branden 
Douglas,  12  Bush,  672,  720.  Manuf.  Co.  52  Vt.  75  n. 

1  Conyngham's  App.  57Pa.St.  474;          4  Mount  Holly  etc.  Co.  v.  Ferree, 
Wood's  App.  92  Ib.  379;  Maryland      17  N.  J.  Eq.  117. 


444         QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

sale,  acquire  no  greater  interest  in  such  shares  of  stock  than 
the  amount  of  the  principal  loan  ;  nor  can  he  require  a  trans- 
fer of  such  shares  of  stock  by  the  company.1  Shares  of 
stock  were  bought  by  a  broker  from  a  minor,  fraudulently 
acquiring  possession  of  the  same,  at  less  than  one-third  their 
value,  and  sold  immediately  afterwards  to  a  purchaser  .also 
for  much  less.  The  purchase  from  the  minor  not  being  a 
bona  fide  transaction  in  the  usual  course  of  business,  the 
second  purchaser,  chargeable  with  knowledge  of  the  facts, 
stood  in  no  better  position  than  his  assignor.* 

§  334.  SALE  BY  BROKER  CARRYING  STOCKS,  UPON  DE- 
FAULT.— WAIVER  OP  NOTICE.  —  In  transactions  where  a 
broker  purchases  and  carries  stock  on  the  order  pf  a  cus- 
tomer, paying  about  ninety  per  cent  of  the  cost  from  his  own 
money,  the  customer  depositing  margins  and  sometimes  col- 
laterals, and  agreeing  to  keep  such  margins  at  a  certain  per- 
centage of  the  current  market  quotations,  if  deprecia- 
tions occur  in  the  value  of  the  stock,  and  after  demand 
for  further  margins,  the  customer  defaults,  the  broker  may 
make  an  immediate  sale  of  the  stocks  on  the  stock  exchange, 
without  notice.8  A  customer  replied,  when  asked  for  addi- 
tional margins,  "  I  cannot  give  them  to  you  ;  I  have  no 
money  ;  I  cannot  put  up  any  more  money ;  this  ruins  me  ;  I 
hope  it  won't  ruin  you  ;  you  must  take  care  of  yourself." 
This  was  sufficient  for  the  brokers  to  sell  at  once.4  A  day's 
notice  to  a  customer  to  put  up  additional  margins  was  insuffi- 
cient, and  a  sale  thereunder,  unauthorized ;'  and  where 

1  France  c.  Clark,  L.  R.  22   Ch.  4  Cameron   v.  Durkheim,    supra. 

D.  830;  aff.  26  Ib.  257.  A  sale  was  not  authorized  where  the 

*  Anderson  v,  Nicholas,  28  N.  Y.  notice  was  that  unless  further  mar- 

COO.  gins    were    furrished,   the    stocks 

•Covell  v.  Loud,  135  Muss.  41  (16  would  be  "used."    Genet  v.  How- 

C.  L.  J.  471);  Butterfleld  v.  Stevens,  land,  4->  Barb.  560. 

69  Iowa,  596;  Markham  v.  Jaudon,  5  Colt  v.  Owens,  90  N.  Y.  368.    A 

41  N.  Y.  235 ;  Baker  v.  Drake,  66  day's  notice  was  held  sufficient  in 

Ib.  518 ;  Gruman  v.  Smith,  81  Ib.25;  Milliken  v.  Dehon,  27  N.  Y.  364. 
Cameron  v.  Durkheim,  55  Ib.  425. 


THE  PLEDGEE'S  SALE  OF  STOCKS.  445 

the  notice  was  that  other  margins  must  be  deposited  at  an 
early  hour  on  the  same  day,  the  sale  upon  default  was  not 
sustained.1  Where  it  is  impossible  to  notify  the  pledger  of 
intended  sale,  only  at  a  great  expense  of  time,  and  to  require 
the  consequent  delay  would  be  unfair  to  the  broker  carry- 
ing the  stock,  no  notice  need  be  given.* 

Written  contracts  defining  the  rights  of  parties,  upon 
default  and  sale,  are  resorted  to  in  order  to  avoid  the  diffi- 
culties and  litigation  which  frequently  arise  from  objections 
by  customers  to  the  validity  of  sales  made  by  brokers  where 
the  latter,  having  purchased  stocks  mainly  with  their  own 
funds,  and  are  carrying  the  same  for  their  customer,  who 
pays  interest  upon  advances,  and  agrees  to  keep  certain 
margins  good  during  the  period  intervening  before  and  to 
the  time  of  delivery,  and  upon  default  the  broker  has  sold 
the  stocks  and  losses  result  which  the  customer  is  called 
upon  to  pay.  By  such  agreements  it  is  provided  that  upon 
default  of  the  customer  the  broker  shall  be  entitled  to  pro- 
ceed at  once  to  sell  stocks  held  by  him,  without  notice,  at 
public  or  private  sale,  the  customer  to  be  liable  for  any 
deficiency,  or  entitled  to  any  surplus,  upon  payment  of 
proper  charges.  Such  contracts  are  valid,  when  made  in 
good  faith,  and  fairly  executed.3  Where  a  power  of  sale, 
public  or  private,  without  notice,  is  given  upon  margins 
falling  below  a  certain  percentage  of  the  market  value,  the 
broker  may  sell  the  stock  purchased  by  him  for  his  cus- 
tomer, and  paid  for  mainly  out  of  his  own  funds,  whenever 

1  Burkctt  0.  Taylor,  86  K  Y.  618.  v.  White,  63  Ih.  158;  Ogdcu  v.  Lath- 

*  City  Bank  v.  Babcock,  Holmes,  rop,  65  Ib.  535;  Baker  v.  Drake,  G6 

180.  Ib.  518;  Colket  v.  Ellis,  10  Phila. 

1  Child  V.  Hogg,  41  Cal.  519;  Hy-  375.     In  early  cases  the  power  of 

att  v.  Argenti,  3  Ib.  151;  Hamilton  sale  given  in  such  contracts  was  not 

v.  State  Bank,  22  Iowa,  306;  Clark  sustained,  as  being  a  waiver  of  an 

«.  Bouvain,  20  La.  Ann.  70;  Bryson  equity  of  redemption.     Campbell  v. 

v.  Itayner,   25  Md.  424;    Maryland  Parker,    9    Bosw.   322;    Hanks  v. 

Ins   Co.  v.  Dairy mple,  Ib.  242,  264,  Drake,  49  Barb.  186;  Wilson  v  Lit- 

269 ;  Stenton  v.  Jerome,  54  N.Y.  480;  tie,  2  N.  Y.  443,  448. 
Wicks  ».  Hatch,  62  Ib.  535;  Quiucy 


446          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

the  market  renders  it  prudent,  not  only  for  the  protection 
of  his  own  interest,  but  also  for  the  benefit  of  his  cus- 
tomer.1 

§  835.  THE  BROKER'S  DELAY  IN  SALE,  NO  DEFENSE 
AGAINST  SUIT. — The  broker  carrying  shares  of  stock  pur- 
chased by  him  for  a  customer,  upon  a  deposit  of  margins, 
as  security  for  his  advances,  is  under  no  obligation  to  sell 
the  stocks  in  order  to  provide  funds  to  pay  the  debt  of  the 
customer.  The  customer  is  not  discharged  as  to  his  personal 
obligation,  by  reason  of  mere  neglect  of  the  broker  to  sell 
the  stocks,  although  in  the  meantime  they  have  depreciated 
in  value,  or  even  become  worthless.  At  any  time,  upon  the 
equitable  terms  of  paying  his  debt  to  the  broker,  the  cus- 
tomer may  require  a  transfer  of  the  certificates  representing 
the  shares  of  stock,  or  during  the  option,  may  require  the 
closing  of  the  deal,  receiving  any  surplus  from  the  sale  of 
the  stocks,  or  paying  losses.*  Nor  is  it  any  defense  for  the 
customer,  as  against  an  action  by  his  brokers  for  moneys 
paid  at  his  request  and  services  performed,  that  although  the 
brokers  gave  notice  they  would  no  longer  carry  the  stocks  un- 
less further  margins  were  furnished,  and  the  margins  were 
not  sent,  continued  to  hold  such  stocks  until  they  became 
valueless.  Had  the  market  advanced  after  a  sale  of  the  stock, 
the  customer  would  probably  have  insisted  that  the  brokers 
were  liable  for  a.  wrongful  sale.8  The  failure  to  sell  col- 
lateral stocks  after  the  entry  of  judgment  on  the  principal 
debt,  will  not  entitle  the  pledgor  to  a  return  of  the  col- 
laterals, so  long  as  the  judgment  remains  unpaid.4 

§  336.  MEASURE  OF  DAMAGES  FOR  WRONGFUL  SALE 
BY  BROKERS. — A  customer  is  entitled  to  his  action  for 

1  Wicks  v.  Hatch,  62  N.  Y.  535.  Granite  Bank  «.  Richardson,  7  Met. 

*  O'Neil  v.  Wightman,  87  Pa.  St.  407;  Robinson  v.  Hurley,  11  Iowa, 

394;  Williamson  v.  McClure,  37  Ib.  410;  Richardson  t>.  Insurance  Co. 27 

402;  Lawrence  v.  Maxwell,  53  N.Y.  Gratt.  749. 

19;  Tntrgard  v.  Courtenius,  15  Wend.  *  Essex  v.  Linderman,  71  Pa.St.76. 

155;  Rozet  v.  McClcllan.  48  111.  345;  *  Fisher  v.  Fisher,  98  Mass.  303. 


TUB  PLEDGEE'S  SALE  OF  STOCKS.  447 

damages  against  his  broker,  where  the  latter  has  sold  the 
collateral  stocks  without  demand  for  further  margins,  or 
for  payment  of  the  debt  for  which  certificates  of  stock  are 
held  as  collateral  security,  or  has  failed  to  give  reasonable 
notice  of  the  time  and  place.  If  the  customer  or  pledger 
suffers  damage  by  the  unauthorized  sale  of  the  broker  or 
pledgee,  the  latter  are  liable  to  make  good  the  loss.1 
Such  damages  in  exceptional  cases  may  exceed  the  value  of 
the  stock  at  the  time  of  the  conversion,  piovided  they  are 
a  proximate  result,  and  are  included  in  a  just  compensa- 
tion.* The  measure  of  damages  resulting  from  unau- 
thorized sales  by  brokers  includes  all  those  arising  or  flow- 
ing from  the  wrongful  act,  being  the  value  of  the  stocks  at 
the  time  of  the  conversion,  interest  to  judgment,  and  any 
special  damage  legitimately  arising  out  of  matters  in  ex- 
istence at  the  date  of  the  tort.3  Or  the  pledgor  may  re- 
cover a  sum  of  money  sufficient  to  buy  new  shares,  with 
allowance  for  dividends  paid,  and  interest,  or  he  may  have 
a  re-conveyance  cf  the  shares.4 

The  rule  of  damages  applied,  where  a  broker  carrying 
shares  of  mining  stocks,  usually  of  uncertain  value,  to- 
gether with  margins,  as  security  for  his  advances,  interest 
and  commissions,  makes  atortious  sale  of  such  shares,  is  the 
highest  market  value  of  the  stock  at  any  time  between  the 
conversion  and  the  verdict,  with  interest.6  Where  stocks 
were  obtained  by  a  minor  fraudulently,  and  sold  for  one- 
third  their  value,  the  purchaser  being  chargeable  with 
knowledge,  the  measure  of  damages  recovered  by  the 
owner  upon  a  refusal  of  the  purchaser  to  re-transfer,  was  the 
value  of  the  stock  and  interest  from  the  commencement  of 
the  action.6  A  sale  of  certificates  of  stock,  held  as  col- 
lateral security,  to  a  third  person,  was  made  by  the  pledgee, 
upon  default,  upon  a  pre-arranged  contract,  and  refusal  to 

1  Denton  v.  Jackson,  10G  111.  433.  *  Fowle  v.  Ward,  113  Mass.  548. 

*  Seymour  v.  Ives,  48  Conn.  109  ;  6  Dent  v.  Holbrook,  54  Cal.  145. 

Bates  v.  Wiles,  1  Handy,  532  •  Anderson  v.  Nicholas,  28  N.  Y. 

8  Boylan  v.  Huguet,  8  Nev.  345.  600. 


448          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

allow  the  pledger  an  additional  day's  time,  although  the 
latter  offered  funds  as  promised,  and  demanded  return  of 
the  collateral  stocks.  Such  a  sale  being  clearly  inequitable, 
the  pledger  was  allowed  to  recover  his  damages.1 

§  367.  MEASURE  OF  SUCH  DAMAGES  IN  NEW  YORK  AND 
PENNSYLVANIA. — The  measure  of  damages  where  there  has 
been  an  unauthorized  sale  of  stocks  carried  by  a  broker  on 
margins  furnished  by  a  customer,  for  speculative  purposes, 
is  held,  in  New  York,  to  be  the  market  price  of  the  stocks 
from  the  time  of  such  sale  to  a  reasonable  time  after  notice 
thereof  is  received  by  the  customer.9  If,  in  the  meantime, 
the  stock  has  advanced  in  value,  the  customer  is  entitled  to 
the  difference,  although  where  it  has  declined,  thejjustomer, 
suffering  in  fact  no  injury  by  such  sale,  is  not  allowed  to 
claim  a  greater  benefit  than  if  the  wrongful  act  had  never 
been  committed.3  The  question  of  what  is  a  reasonable 
time  is  governed  by  the  circumstances  of  each  case,  and  is 
generally  left  to  a  jury  to  decide.4 

The  rule  approved  in  Pennsylvania  as  to  the  measure  of 
damages  for  conversion  of  stock  in  the  absence  of  any  trust 
relation  between  the  parties,  or  of  any  obligation  to  deliver 
specific  shares,  is  the  market  value  of  the  stock  on  the  day 
it  should  have  been  delivered,  with  interest  thereon,  to  the 

1  Stevens  v.  Bank,  31  Conn.  146.  Hill.  593  ;  s.  c.  7  Ib.  497 ;  Wilson  ». 

9  Baker  v.  Drake,   53  N.  Y.  211  ;  Little,   2  N.  Y.    443 ;    Roinaine  v. 
B.  c.  66  Ib.  518  ;  Thayer  v.  Manley,  Allen,  26  Ib.  309  ;  Burt  v.  Dutcher, 
73  Ib.  305 ;  Gruman  v.  Smith,  81  Ib.  34  Ib.  493  ;  Marklmm  v.  Jaudon,  41 
2'j  ;     Colt    v.   Owens,  90    Ib.  368  ;  Ib.  235  ;  Morgan  v.  Gregg,  46  Barb. 
Roberts    v.  Berdell,    61    Barb.    37.  183  ;  Nauman  v.  Caldwell,  2  Swee- 
Overruling  the  rule  formerly   pre-  ney,  212.     The  like  rule  was    de- 
vailing  in  New  York  by  which  the  clared  in  an  early  case  in  Pennsyl- 
measure  of  damages  recovered  by  vania.     Bank    of    Montgomery    v. 
the  customer  was  the  highest  mar-  Reese,  26  Pa.  St.  143. 
ket  price  for  which  such  stock  had  *  Gruman  ».  Smith,  81  N.  Y.  25. 
been  sold  in  the  interval   between  4  Baker  v.  Drake,   53  N.  Y.  211 ; 
the  conversion,    and    the    day    of  s.  c.  66  Ib.  518;  Colt  v,  Owens,  90 
trial,  and  even  during  the  progress  N.  Y.  338. 
of  the  trial.     Allen  v.  Dykers,   8 


THE  PLEDGEE'S  SALE  OF  STOCKS.  449 

time  of  trial,  being  the  rule  of  damages  as  on  contracts  of 
other  marketable  commodities,  where  there  has  been  no 
fraud,  and  the  parties  stand  in  equali  jure.1  Upon  an 
action  of  assumpsit  for  the  value  of  stock  disposed  of  at  an 
unauthorized  sale,  the  tort  being  waived,  the  recovery  is 
limited  to  the  value  of  the  stock  at  the  time  of  the  conver- 
sion, with  interest.1  Where  such  stocks  are  held  in  trust 
under  a  contract  of  pledge,  the  dividends  and  accretions  be- 
longing to  the  pledger,  an  unauthorized  sale  makes 
the  pledgee  chargeable  with  what  would  have  been  received 
had  the  stocks  been  retained  until  the  equity  of  redemption 
of  the  pledger  was  foreclosed  by  sale,  after  notice,  in  the 
manner  prescribed  by  law  ;  and  the  measure  of  damages  in 
such  actions  is  the  value  of  the  stock  at  the  highest  rate  it 
has  at  any  time  since  attained  in  the  market.  This  rule  of 
damages  is  strictly  confined  to  trust  transactions,  the  other 
rule  being  applied  where  the  facts  require  it.1 

§  338.  THE  PLEDGOR  ENTITLED  TO  PROFITS  ON  UN- 
AUTHORIZED SALE. — Upon  a  wrongful  sale  of  stocks  by  a 
pledgee  made  before  the  maturity  of  the  principal  note,  and 
a  tender  of  the  debt,  and  demand  for  the  collaterals 
is  made  by  the  pledgor  at  maturity,  an  offer  by  the  pledgee 
of  like  shares  of  the  same  stock,  which,  in  fact,  he  has  pur- 
chased subsequently  to  the  unauthorized  sale  at  a  great  de- 
preciation in  price,  is  insufficient.  The  pledgor  is  entitled,  at 
his  election,  to  decline  to  receive  such  shares,  and  may 
bring  an  action  against  the  pledgee  for  the  profits  realized 
upon  the  unauthorized  sale.  The  decline  in  value  of  the 
stocks  pledged  subsequently  to  the  sale  forms  no  defense  to 
such  action.4  Certain  certificates  of  stock,  properly  in- 

1  North  v.  Phillips,  89  Pa.  St.  250;  Work  «.  Bennett,  70  Ib.  484;  North 

Huntington  etc.  Co.  v.  English,  86  Ib.  v.  Phillips,  89  Ib.  250. 

257.  4  Fowle  v.  Ward,  113  Mass,  548  ; 

*  Wagner  0.  Peterson,  83  Pa.  St.  Shaw     v.    Spencer.     100    Ib.    382; 

233.  DykerstJ.  Allen,  7  Hill,  497  ;  Rankin 

fl.  Kelly,  69  Pa.  St.,  403  ;  «.  McCullough,  12  Barb.  103  ;  Law- 
29 


450 


QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


dorsed,  were  -delivered  to  stockbrokers  as  collateral  se- 
curity for  a  loan.  Before  maturity  of  the  loan,  the  pledger 
contracted  to  sell  the  stock,  and  tendered  the  loiin  with  in- 
terest for  the  full  time,  demanding  the  collaterals.  The 
pledgees,  meanwhile,  had  sold  the  stock,  and  refused  to  ac- 
cept payment  or  to  reconvey  the  stock  until  the  maturity  of 
the  loan  ;  and  the  principal  had  to  pay  his  vendee  differences. 
At  the  time  fixed  for  paj-ment,  the  brokers  returned  a  like 
number  of  shares  of  stock,  which  they  had  purchased  at  A 
great  decline  in  price.  The  pledger  sued  for  the  profits 
which  had  been  realized.  In  the  absence  of  express  con- 
tract, the  pledgee  having  no  authority  to  sell  until  the  ma- 
turity of  the  principal  loan,  the  \ ledger  was  entitled  to 
charge  him  with  the  price  obtained  at  such  sale  if  he  found 


rence  v.  Maxwell,  53  N.  T.  19  ; 
Taussigt>.  Hart,  49  Ib.  301  ;  Conyng- 
bam's  App.,  57  Pa.  St.  474 ;  Hun- 
saker  v.  Sturgis,  29  Cal.  142  ;  ex 
parte  Dennison,  3  Ves.  555.  The 
reasons  of  the  rule  are  stated  in 
Taussig  v.  Hart,  supra,  in  which  it 
•was  agreed  that  the  broker  should 
buy  and  sell  stocks,  as  the  customer 
should  direct,  upon  a  margin  of  ten 
per  cent,  and  the  benefit  of  dividends, 
all  purchases  and  sales  to  be  regular. 
The  broker  speculated  in  the  stock, 
and  bought  it  in  at  a  decline.  The 
court  (Rapallo.J.)  say  :  "  The  sub- 
sequent acquisition  by  the  brokers, 
after  the  stock  had  fallen  to  a  very 
low  figure,  of  a  sufficient  number  of 
shares  to  replace  those  which  theyhad 
held  for  account  of  their  principal, 
did  not  relieve  them  from  liability. 
Such  re-acquired  stocks  were  never 
accepted  by  the  principal,  and  he 
was  in  fact  ignorant  of  the  transac- 
tions. To  allow  a  broker  to  sell  his 
customer's  stock  without  authority 


and  speculate  upon  replacing  it  at 
a  lower  price  would  be  encouraging 
speculations  by  agents,  at  the  risk 
of  their  principals,  totally  inadmis- 
sible under  familiar  rules.  Should 
the  stock  rise  largely  in  price  after 
the  broker  had  thus  divested  him- 
self of  all  control  over  the  shares 
which  he  had  purchased  on  the  or- 
der of  his  principal,  the  broker 
might  be  unable  to  replace  the 
shares,  and  the  principal  would 
have  no  remedy  except  a  personal 
claim  against  the  broker.  This 
clearly  is  not  what  is  contemplated 
under  an  agreement  to  buy  and 
carry  stocks.  The  customer  does 
not  rely  upon  an  engagement  of  the 
broker  to  procure  and  furnish  the 
stocks  when  required,  but  to  pur- 
chase and  hold  the  number  of 
shares  ordered,  subject  to  the  pay- 
ment of  the  purchase  price."  The 
customer  was  allowed  the  value  of 
the  stock  on  the  day  of  sale. 


THE  PLEDGEE'S  SALE  OF  STOCKS.  451 

it  to  his  interest  so  to  do,  notwithstanding  any  subsequent 
reduction  in  the  market  value  of  the  stock.1 

§  339.  THE  BROKER'S  RIGHT  OF  SET-OFF  AGAINST  DAM- 
AGES FOR  CONVERSION. — Upon  a  contract  by  which  a  broker 
agrees  to  purchase  certain  stocks  for  a  customer,  and  to 
carry  the  same,  holding  the  stocks  and  margins  deposited 
by  the  customer  as  security  for  his  advances  there  is  on  the 
part  of  the  customer  an  agreement,  express  or  implied,  that 
the  margin  shall,  if  the  stock  depreciates,  be  replenished 
and  kept  good,  upon  demand,  and  that,  upon  the  failure  so 
to  do,  the  stock  may  be  sold  upon  reasonable  and  customary 
notice.  A  sale  without  such  notice  is  a  conversion  and 
does  not  bind  the  pledgor,  who,  in  a  suit  by  the  broker  for 
a  deficiency,  may  insist  upon  a  full  indemnity  for  his  loss  or 
injury.  This,  however,  is  not  necessarily  the  whole  amount 
of  such  claim  of  the  broker.*  Nor  will  an  unauthorized  sale 
of  stock  certificates  by  a  pledgee,  no  demand  or  notice  being 
given,  vest  the  immediate  right  to  their  possession  in  the 
pledgor,  so  as  to  entitle  him  to  maintain  an  action  of  trover 
for  the  whole  value  of  the  shares,  or  for  nominal  damages.* 
But  a  broker  employed  to  purchase  and  carry  stocks,  and 
under  agreement  or  usage,  holding  the  title  thereto  in  his 
own  name,  is  not  entitled  to  maintain  an  action  against  his 
customer  for  not  furnishing  moneys  to  pay  for  the  stocks, 
without  demand  of  payment,  and  tender  of  the  stocks. 
Should  the  broker,  under  such  circumstances,  sell  the  stocks 
without  notice,  thersby  disabling  himself  from  making  a 
transfer  thereof,  such  sale  is  a  conversion,  and  the  broker 
loses  any  right  of  action  he  might  otherwise  have  had.4 

1  Langton  v.  Waite,  L.  R.  6  Eq.  to  satisfy  his  obligation  by  trans- 

165.     Upon  hearing  on  the  appeal,  f erring  a  like  amount  of  the  same 

it  appeared  that  the  pledgor,  after  stock,   and  his  bill  was  dismissed, 

receiving  the  substituted  stock  from  Langton  v.  Waite,  L.  R.  4  Ch.  402. 

the  broker,  sold  the  same,  so  that  it  *  Vail  v.  Hamilton,85  N.  Y.  453. 

was  impossible  for  him  to  re-trans-  'Nahring  v.  Bank  of  Mobile,  58 

fer  the  stock  in  accordance  with  the  Ala.  20  ;  Halliday  r>.  Holgate,  L.  R. 

offer  in  his  bill.    He  was  not  per-  3  Ex.  299. 

milled  any  more  than  the  pledgee  4  Merwin  v.  Hamilton,  6  Duer,  24.4. 


452          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER  XXXIV. 

THE  RIGHTS  OF  THE  PLEDGOR  OF  STOCKS. 


g340.  Relief  of  the  pledgor  of  collateral  stocks,  in  equity. 

341.  Relief  of  pledger  by  specific  performance,  by  redemption,  etc. 

342.  Limitations  of  pledger's  relief  in  equity. 

343.  Pledger's  right  to  redeem  stock  defeated  by  laches. 

344.  The  recovery  at  law  of  the  pledgor  of  stocks. 

345.  No  action  of  trover  by  pledgor  on  pledgee's  transfer. 

346.  Upon  discharge  of  debt,  pledgor  entitled  to  his  collateral  stocks. 


§  340.  RELIEF  OP  THE  PLEDGOR  OF  COLLATERAL 
STOCKS,  IN  EQUITY. — Courts  of  equity  take  cognisance  of 
cases  arising  from  the  use  of  certificates  of  stock  as  collateral 
security,  upon  acknowledged  grounds  of  equitable  jurisdic- 
tion. Generally,  the  pledgor  of  collateral  stocks  has  a  full 
and  complete  remedy  at  law  for  wrongful  sales  and  transfers 
by  the  pledgee,  and  resort  to  equity  is  not  necessary,  and  is 
not  permitted.  The  value  of  the  shares  of  stock  represented 
by  the  certificates  is  fixed  by  the  daily  transactions  on  the 
Stock  Exchanges,  and  is  easily  arrived  at,  and  the  facts  thus 
established  are  as  available  at  law  as  in  equity.  Equity 
however,  will  in  proper  cases,  decree  specific  performance 
of  a  contract  for  the  delivery  of  particular  stocks  having  a 
special  value ;  and  in  other  ways  aid  the  parties  to  the  con- 
tract of  pledge.1  Courts  of  equity  will  aid  the  pledgor, 

'Fraseru  Charleston,  11  S.  C.  486;  391 ;  Strasbourg    v.   Echtcrnact,  21 

Hathaway  «.  Fall  River  Bank,  131  Pa.  St.  220 ;  Canfield  v.  Minneapolis 

Mass.  15;  Newton  t>.  Fay,  10  Allen  etc.  Assn.  14  Fed.  Rep.  801;  Ross  r>. 

505;  Pinkertou  ».  Manchester  R.  R.  Union  Pac.  Ry.  Co..  1  Woolw.  26  ; 

Co.,  42  N.  H.  424;    Hasbrouck  v.  Fallen  v.  Railroad  Co.,  1  Dill.  121 ; 

Vandcrvoort,  4Sanclf.74;  Treasurer  Brick  v.  Brick,  98  U.  S.  514;  Hay- 

t>.  Commercial  Mining  Co.,  23  Cal.  ward  v.  National  Bank,  96  Ib.  611 ; 


THE  RIGHTS  OP  THE  PLEDGOR.  453 

where  certificates  of  stock,  indorsed  with  power  of  attorney 
to  transfer,  have  been  delivered  as  collateral  security,  and 
transferred  upon  the  books  of  the  company,  by  requiring  dis- 
covery of  the  real  interest  of  the  pledgee  in  the  stock. 
Testimony  will  be  heard  as  to  the  considerations  and  pur- 
poses of  the  transfer,  and  upon  the  equitable  terms  of  pay- 
ment of  the  principal  debt,  a  re-conveyance  of  the  shares  of 
'stock  is  decreed.1  Where  the  evidence  is  in  favor  of  the 
claims  of  the  pledgee  to  retain  the  stock,  dismissal  of  the 
bill  is  generally  ordered.*  A  pledger  of  collateral  stocks,  or 
one  who  has  acquired  his  interest,  may  bring  a  suit  in  equity 
to  set  aside  an  invalid  sale  of  such  securities,  where  the 
pledgee,  through  its  agent,  became  the  purchaser.8  Equity 
will  compel  a  replacement  of  stocks  held  as  collateral  security, 
lost  through  the  gross  negligence  of  the  pledgee,  or  pay- 
ment of  the  value  ;4  and  will  control  the  application  of 
securities  held  from  different  pledgers  by  sub-pledgees,  so  as 
to  carry  out  equitable  principles  in  the  resort  to  such  securi- 
ties, and  distribution  of  proceeds.6 

§  341.  RELIEF  OF  PLEDGOR  BY  SPECIFIC  PERFORMANCE, 
BY  REDEMPTION,  ETC. — The  remedy  of  the  pledger,  for  an 
unauthorized  transfer  of  his  stock,  or  its  misappropriation  or 
tortious  sale,  is  by  an  action  at  law,  but  cases  of  a  special  or 
particular  stock,  however,  may  arise,  in  which  courts  of 
equity  will  decree  a  specific  performance  of  an  agreement  to 
convey  or  to  replace  or  to  transfer  specific  stocks  where  the 
ordinary  rules  of  damages  in  actions  at  law  would  be 
altogether  insufficient.  The  rule  is  usually  enforced  in 
regard  to  shares  of  stock  of  mining  companies,  which  occupy 

France  •».  Clark,  L.  R    22   Oh.   D.         *  Fowle  v.  Ward,  113  Mass.  548. 
880  ;  Shaw  v.  Fisher,  5  DeG.  M.  &          •  Chamberlain  v.  Greenleaf,  4  Abb. 
G.  596.  N.  Cas.  178  ;  Samuels  v.  Boykin,  27 

1  Newton  v.  Fay,  10  Allen,  505 ;      Ga.  47 ;  Barnes  v.  Mott,  64  N.  Y. 
Burke's  App.,  99  Pa.  St.  350.  397. 

'Burke's  App.,  99  Pa.  St.  350. 

*  Canfleld  v.  Minneapolis  etc.  Assn. 
14  Fed.  Rep.  801. 


454          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

an  uncertain  position  on  the  public  exchanges,  and  are 
generally  of  changing,  indeterminate  value,  so  that  it  is 
difficult  to  arrive  at  their  real  worth.  Such  shares  of 
stock  may  also  possess  a  particular  and  special  value  to 
certain  persons.1  A  bill  to  redeem  shares  of  stock,  brought 
by  the  assignee  of  an  insolvent  pledger,  was  supported, 
where  the  pledgee  claimed  to  retain  the  collateral  securities 
under  a  contract  for  liabilities  other  than  the  principal  note 
discounted  at  the  time  of  the  pledge,  and  in  which  a  tender 
of  the  amount  of  the  principal  note  was  made,  upon  the  equit- 
able terms  of  payment  of  the  debt,  with  interest,  after 
deducting  dividends  collected  by  the  pledgee.  Such  a 
cause  may  be  referred  to  a  master  to  state  an  account, 
where  necessary.*  In  a  redemption  suit,  where  a  mortgage 
of  certain  shares  of  stock  for  a  term  of  }-ears  to" secure  the 
purchase  of  like  stock  at  the  end  of  the  term,  and  the  pay- 
ment of  interest  in  the  meantime,  the  mortgagee  had  per- 
mitted the  transaction  to  continue  after  the  end  of  the 
term,  the  stock  then  heavily  declining  in  value,  the 
mortgagor  was  allowed  to  redeem  by  purchasing  stock  at 
the  time  of  the  trial,  not  being  charged  with  the  value 
thereof  at  the  expiration  of  the  term,  the  mortgagee  having 
waived  the  obligation  to  purchase  at  that  particular  time.3 
An  authorized  pledge  of  stock  of  a  third  person  was  made  by 
stockbrokers  to  a  bank  for  a  specific  loan,  the  brokers  giving 
a  promissory  note  as  personal  evidence  of  indebtedness,  the 
bank  being  chargeable  with  notice  that  the  loan  was  for  the 
third  person,  and  to  be  used  in  paying  part  of  the  purchase 
money  of  the  stock,  and  that  the  stock  belonged  to  such 
third  person.  A  tender  of  the  loan  was  made,  but  the  bank 


1  Cushman  v.  Thayer  Mnf?.  Co.,  master  v.  Consumers'  Ice  Co..  5  Daly, 

76  N.  Y.  365;  White  v.  Schuyler,  1  313;  Treasurer  v.  Commercial  Min- 

Abb.  N.  S.  300;  Philip  t.  Barker,  2  ing  Co.,  23  Cal.  391. 

Barb.  608 ;  Purchase  v.  New  York  *  Hathaway  v.  Fall  River  Bnnk, 

Exoh.  Bank,  8  Robt.  164  ;  Middle-  131  Mass.  15. 

brook  0.  Merchants'  Brink,  41  Barb.  'Blylh  v.  Carpenter,  L.  R.  2  Eq. 

481 ;  8.  c.  aff.  3  Abb.  App.  295 ;  Buck-  501. 


THE  EIGHTS   OF  THE  PLEDGOE.  455 

claimed  a  lien  on  the  stock  for  other  loans  to  the  stock- 
brokers remaining  unpaid.  The  owner  of  the  stock  waa 
allowed  to  redeem  the  same  or  recover  damages,  although  the 
power  of  attorney  of  the  stockbroker  was  absolute  in  its 
terms.  Chargeable,  however,  with  knowledge  of  the  limited 
power  of  the  agent,  the  bank  could  acquire  no  greater 
rights  than  those  actually  given.1 

§  342.  LIMITATIONS  OF  PLEDGOE' s  BELIEF  IN  EQUITY. — 
The  pledger,  when  he  seeks  relief  in  equity,  is  required  to  do 
equity.  Where  a  bona  fide  advance  has  been  made  on  the 
collateral  securities  deposited,  or  other  valuable  considera- 
tion, equity  requires  that  the  debt  shall  be  first  paid  before 
it  will  lend  its  aid  to  obtain  a  retnrn  of  the  securities. 
In  this,  it  carries  into  effect  the  rule  that  equity  follows 
the  law.  Although  the  sale  or  sub-pledge  of  stock  col- 
lateral stocks  be  a  tortious,  unauthorized  act,  or  if  it  be  before 
the  power  of  sale  given  by  the  contract  of  pledge  has  come 
into  force,  default  not  having  occurred,  the  contract  of 
pledge  is  not  annihilated,  and  law,  as  well  as  equity,  re- 
quires that  as  against  any  claim  for  damages  arising  there- 
from, the  amount  of  the  bona  fide  loan  made  thereon  shall 
be  set-off  as  a  counter-charge.2  Nor  will  equity  aid  a 
trustee,  holding  shares  of  a  company  for  an  adult  cestui  que 
trust,  who  paid  the  money,  but  to  whom  upon  the  execution 
and  presentation  of  a  transfer  by  the  trustee,  the  company 
refused  to  transfer  the  shares.  The  company  subsequently 
became  bankrupt,  and  the  trustee  claimed  an  indemnity 
from  the  cestui  que  trust  against  future  calls.  As 
no  calls  had  been  made,  and  no  proof  was  offered  that 
any  would  be  made,  no  ground  for  equitable  relief  was 
shown,  and  the  bill  of  the  trustee  was  dismissed.3  The 
receiver  of  an  insolvent  firm  of  stockbrokers  is  not  required 

1  Talmadge  «.  Third  Nat.  Bank,  liday  v.  Holgate,  L.  R.  3  Ex. 

91  N.  Y.  581.  299. 

9  Hathaway  v.  Bank.  131  Mass.  15;  *  Hughes-Hallet  «.  Indian  Mines 

Newton  t>.  Fay,  10  Allen,  505;  Hal-  Co.,  L.  R.  20  Ch.  D.  561. 


456          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

in  equity  to  redeem  the  stock  sub-pledged  by  the  firm  by 
paying  the  debts  due  to  the  sub-pledgees,  and  will  have  no 
right  to  do  so  at  the  risk  of  loss  to  the  general  creditors. 
Even  a  tender  of  his  debt  made  to  him  by  a  pledgor  of  such 
stock  so  sub-pledged,  imposes  no  special  duty  upon  such 
receiver  to  redeem  the  stock  for  the  benefit  of  the  pledgor. 
The  rule  is  otherwise  where  such  stock  is  in  the  hands  of 
the  receiver.  Upon  paying  his  debt,  the  pledgor  thereof  is 
equitably  entitled  to  a  return  of  his  collateral  stocks,  and 
such  receiver  will  be  required  to  deliver  them.1  Equity 
will  not  take  jurisdiction  of  an  account  arising  out  of  a 
transaction  in  collateral  stock  securities,  upon  the  ground 
of  settlement  of  complicated  accounts,  where  one  item  only 
is  in  dispute.* 

§  343.  PLEDGOR'S  RIGHT  TO  REDEEM  STOCKS  DEFEATED 
BY  LACHES. — The  pledgor  of  certificates  of  stock  may, 
however,  lose  his  claim  to  equitable  relief  by  laches.  If  he 
permits  any  claim  or  right  he  may  have  to  redeem  shares  of 
stock  pledged  as  collateral  security  to  sleep  for  j-ears,  and 
then,  upon  an  increase  in  the  market  value  of  such  stock, 
tenders  the  amount  of  his  indebtedness  in  order  to  secure 
the  advantage  of  the  rise,  courts  of  equity  refuse  to  aid  him 
to  obtain  a  return  of  his  collateral  securities.  A  bill  was 
brought  in  equity  to  redeem  mining  stocks  delivered  to  a 
bank  as  collateral  security  for  a  loan  made  in  good  faith. 
The  stocks,  upon  default  in  payment  of  the  loan,  were  sold 
under  a  valid  contract  of  pledge,  and  purchased  by  three 
directors  of  the  bank  at  a  price  above  the  market  quota- 
tions. The  proceeds  of  the  sale  discharged  the  loan,  of 
which  the  pledgor  was  informed,  and  made  no  objection. 
The  stocks  increased  in  value,  and  four  years  afterwards, 
the  pledgor  gave  notice  to  the  bank  that  he  desired  to 
redeem  the  collateral  securities;  and  upon  refusal,  sued  but 

1  Chamberlain  v.  Grcanleaf ,  4  Abb.         '  Durant  t>.  Einstein,  35  How.  Pr. 
N.  Cas.  178.  223. 


THE   RIGHTS   OF  THE  PLEDGOR.  457 

unsuccessfully.  Having  failed  to  act  with  diligence  before 
any  material  change  in  the  circumstances  or  in  the  value  of 
the  stock  had  intervened,  the  pledger  had  lost  any  right 
which  he  might  have  had  to  repudiate  the  sale  and  recover 
the  stocks.1  Seven  years'  delay  is  laches.1  A  delay  of 
eleven  years  constituted  a  bar  to  any  equitable  relief  of  a 
pledger,  who  deposited  shares  of  stock  as  collateral  se- 
curity for  a  note,  and  was  seeking  to  take  advantage  of  a 
considerable  rise  in  the  market  value  of  the  stock.3  An 
application  for  equitable  relief,  brought  nineteen  years  after 
the  contract  of  pledge,  was  not  favored,  the-  principal  evi- 
dence of  the  debt,  promissory  notes,  and  equitable  remedy 
being  barred  by  the  statute  of  limitations.4  In  Louisiana, 
however,  shares  of  stock  pledged  as  security  for  a  loan  con- 
stitute a  constant  acknowledgment  of  the  debt,  and  inter- 
rupt prescription  during  the  time  the  pledged  securities 
remain  in  possession  of  the  pledgee/ 

§  344.  THE  RECOVERY  AT  LAW  OF  THE  FLEDGOR  OF 
STOCK. — Actions  of  trover  founded  upon  conversion  of 
shares  of  stock,  may  be  brought  by  a  pledgor,  whose  stocks 
have  been  sold  without  authority,  or  compliance  with  the 
established  customs  and  usages  of  stock  exchanges.  The 
pledgor  may  recover  damages,  subject  generally  to  recoup- 
ment by  the  pledgee  of  the  amount  of  his  loans.8  The 

'Hay ward  v.  National  Bank,  96      derson  v.   Nicholas,  28  N.  Y.  600; 

U.  S.  611.  Ayres  v.  French,  41  Conn.  151;  Boy- 

1  Adams  v.  Sturges,  55  111.  468.  Ian  v.  Huguel,  8  Ncv.  352;  Kulm  v. 

3  Waterman  v.  Brown,  31  Pa.  St.      McAllister,  96  U.  S.  89.  Contra:  Nc-i- 
161.  ter  v.  Kelly,  69  Pa.  St.   407.     The 

4  Robert  v.  Sykes,  30  Barb.  173.  mere  pledge  of  stocks  purchased  by 
6  Conger  v.  City  of  New  Orleans,      a  broker  for  a  customer  on  margins, 

32  La.  Ann  1250;  Blanc  v.  Hertzog,  will  not  amount   to  a  conversion, 

23  Ib.  293;  Citizen's  Bank  v.  Knapp,  Chamberlain  v.   Greeuleaf,    4   Abb. 

22  Ib.  117;  Police  Jury  v.  Donaldo,  N.  Cas.  178.    Assessments  p-iid  on 

Ib.  107;  City  Bank  v.  Johnson,  21  Ib.  the  stock  by  the  pledgee  are  proper 

128.  matters  by  way  of  recoupment  or  in 

•Payne    v.  Elliott,    54  Cal.   339;  mitigation  of  damages  on  the  trial  of 

McCalla  v.  Clark,  55  Ga.  53;  Nahring  an  action  of  trover  for  conversion  of 

t.  Bank  of  Mobile,  58  Ala.  204 ;  An-  stock.     McCalla  v.  Clark,  supra. 


458          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

necessary  requirement  that  the  whole  present  interest  in  the 
property  sought  to  be  recovered,  should  be  in  the  pledger, 
to  sustain  an  action  of  trover,  defeats  such  action  in  cases 
where  there  has  been  an  unauthorized  sale  of  stock  certifi- 
cates, if  no  payment  or  tender  of  the  principal  debt  has 
been  made.  Until  the  pledgor  has  paid  or  tendered  his 
debt,  he  is  not  entitled  to  a  re-delivery  of  stock  certificates 
held  as  collateral  security.  The  entire  present  interest  is 
vested  in  the  pledgee,  and  no  presumption  arises  that  the 
pledgee,  even  by  a  wrongful  sale,  consents  to  revests  in 
the  pledgor  an  immediate  interest  or  right  in  the  pledged 
securities  sufficient  to  sustain  an  action  of  trover.1  Under 
this  rule,  where  a  pledgee  was  vested  with  the  legal  title  to 
the  shares  of  stock  held  as  collateral  security,  the  pledgor 
was  not  entitled  to  maintain  an  action  of  trover.*" 

§  345.       NO      ACTION     OF      TROVER      BY      PLEDGOR     ON 

PLEDGEE'S  TRANSFER. — Actions  of  trover  brought  by 
pledgers  are  not  supported  as  against  pledgees  of  cer- 
tificates of  stock,  indorsed  with  power  of  transfer,  and  who 
have  made  transfers  to  third  persons  for  convenience  upon 
proper  considerations,  where  still  retaining  control  thereof. 
Where  mining  stocks  were  held  as  collateral  security,  a 
transfer  of  some  of  the  shares  to  third  persons  was 
made  in  order  to  relieve  the  pledgee  from  the  supposed  in- 
jury to  his  credit  of  carrying  so  much  mining  stock.  The 
new  certificates,  indorsed  in  blank,  were  retained  by  the 
pledgee,  who  was  ready  to  re-deliver  the  same  upon  pay- 
ment of  the  debt.  The  transaction  not  amounting  to  a  con- 
version of  the  certificates  of  stock,  and  no  tender  of  pay- 
ment, demand  for  the  stock  and  refusal  to  convey  having 
been  made,  the  pledger's  action  of  trover  was  not  'sus- 
tained.* Nor  was  a  transfer  of  stock  a  conversion  thereof, 


'Halliday  v.  Holgate,   L.  R.  3  Ex.         'Nahring   t>.  Bank  of  Mobile,  58 
299;  Johnson    v.  Stear,  15  C.  B.  JS.      Ala.  204. 
S.  330.  » Day  r.  Holmes,  103  Mass.  306. 


THE   RIGHTS   OF    THE   PLEDGOR.  459 

where  a  pledgee  placed  the  same,  by  surrender  of  certificates 
and  the  issue  of  new  certificates  in  the  name  of  a  third 
person  so  that  such  stock  being  intended  as  a  security 
might  not  become  a  burden.1  It  was  held  not  a  conversion, 
so  as  to  make  a  partnership  liable,  where  one  partner  hold- 
ing stocks  for  a  third  person,  with  power  of  sale,  trans- 
ferred the  stock  to  the  partnership  name,  the  other  members 
having  no  interest  in  the  transaction.8 

§  346.  UPON  DISCHARGE  OF  DEBT,  PLEDGOR  ENTITLED 
TO  HIS  COLLATERAL  STOCKS.  —  In  common  with  other 
pledgees,  the  holders  of  certificates  of  stock,  transferred  as 
collateral  security,  are  not  entitled  to  retain  possession  of 
the  collaterals  after  payment  of  the  principal  debt  by  the 
pledger.  The  same  rule  applies  where  a  valid  tender  of  the 
debt  has  been  made  at  maturity.  A  refusal  to  re-deliver 
such  collateral  securities  upon  such  tender,  because  of  an 
unwarranted  claim  to  retain  the  stock,  is  a  conversion  there- 
of by  the  pledgee.8  Where  a  sub-pledgee  had  sold,  under  a 
contract  of  pledge,  stock  certificates,  indorsed  with  power 
to  transfer,  upon  default  of  the  pledgee,  who  had  transferred 
the  stock  held  by  him  as  collateral  security  separate  from 
the  debt,  and  thus  had  incapacitated  himself  from  returning 
the  same  on  payment,  the  pledger  was  allowed  to  maintain 
an  action  for  the  conversion,  without  a  tender  of  the  debt  for 
which  the  stock  was  originally  pledged,  as  against  the  sub- 
pledgee,  he  not  being  a  holder  for  value,  in  the  usual  course 
of  business,  on  account  of  usury  in  his  loan.4  A  pledgee  of 
stock  certificates  as  collateral  security  has  no  more  right  to 
retain  them  after  the  principal  debt  is  tendered  than  a  bank 
has  to  retain  notes  offered  for  discount  and  refused,  or  no 
more  than  if  upon  the  stock  being  offered  as  collateral  secur- 
ity for  the  payment  of  principal  notes,  discount  of  the  notes 
is  refused.5 

1  Heath  e.Griswold,  18  Blatchf. 555.      531;  McCalla  v.  Clark,  55  Ga.  53. 
*  Adams  v.  Sturges,  55  111.  468.  4  Felt  v.  Heyc  32  How.  Pr.  359. 

8  Talmadge  v  Nat.  Bunk,  91  N.  Y.         •  Hathaway  v.  Bank,  131  Mass.  15. 


460          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER   XXXV. 

THE  BROKER'S  OPTION  CONTRACT. 

§347.  The  broker's  option  deal  for  his  customer, 

348.  The  "  seller's  option  "  contract  valid. 

349.  Option  deals,  to  be  settled  upon  differences,  illegal. 

350.  The  validity  of  option  contracts,  as  shown  by  evidence. 

351.  Evidence  of  intention,  upon  action  on  contract  by  broker. 

352.  The  broker's  option  contract  valid,  upon  purchase  of  stock. 

353.  Other  option  contracts  held  valid.  ^ 

354.  The  broker's  option  deals  on  boards  of  trade. 

355.  The  options  known  as  puts,  calls,  straddles,  and  shaves. 

§347.  THE  BROKER'S  OPTION  DEAL  FOR  HIS  CUS- 
TOMERS.— The  contracts  made  by  stockbrokers  and  other 
brokers  operating  upon  the  commercial  Exchanges  of  the 
country,  made  upon  the  order  of  customers,  depend  for  their 
validity  on  the  character  of  the  options  which  are  traded  in, 
and  the  intentions  of  the  parties.  The  speculative  option 
known  as  "seller's"  option,  is  the  most  common  in  use.  It 
gives  the  seller  an  option  of  delivery  during  the  time  speci- 
fied therein,  with  an  express  condition  to  deliver  the  com- 
modity sold  at  a  time  fixed  by  the  contract.  Where  this 
contract  is  made  bona  fide  by  the  parties  thereto,  it  is  valid, 
and  claims  arising  thereunder  are  enforced  by  the  courts 
without  exception.  The  validity  of  such  option  is  not 
affected,  where  one  of  the  parties  acts  in  good  faith  and  with 
the  intention  of  fulfilling  the  same,  by  the  fact  that  the 
other  secretly  intends  not  to  deliver  or  receive  any  property 
at  the  expiration  of  the  option,  but  to  close  the  deal  by  pay- 
ing differences.  The  broker  is  entitled  to  recover  from  his 
customer,  where  deals  in  valid  options  have  been  made  upon 
exchanges,  upon  orders  of  customers,  and  losses  have  oc- 


THE  BROKER'S  OPTION  CONTRACT.  461 

curred,  which  the  broker  has  paid  upon  request,  the  suras 
advanced  and  his  commissions,  although  it  was  never  in- 
tended to  deliver  or  receive  any  property  upon  such  deals. 
The  broker,  however,  cannot  recover  upon  any  contract 
entered  into  between  himself  and  the  .customer  providing 
for  speculations  upon  the  Exchanges  in  stocks  or  other  com- 
modities, where  the  intention  of  both  parties  at  the  making 
of  the  contract  was  that  the  only  deals  were  to  be  mere 
wagers  on  future  prices,  without  any  delivery,  or  the  option 
deals,  known  as  "  puts  "  and  "  calls,"  condemned  and  ren- 
dered void  by  statute.  Courts  refuse  to  aid  the  parties  to 
enforce  payment  of  losses  incurred  upon  such  illegal  con* 
tracts  ;  and  the  negotiable  paper  given  in  settlement  thereof, 
is,  under  the  statutory  provisions  of  several  states,  also  void, 
even  in  the  hands  of  holders  for  value,  without  notice.1 

The  broker  making  purchases  or  sales  of  property  upon 
option  contracts  on  the  Exchanges  upon  the  order  of  his 
customer,  comes  within  the  rule  of  agency  that  "  what  a 
man  may  do  by  himself  he  may  do  by  another.  A  man  may 
employ  a  broker  to  make  a  contract  for  him,  and  to  execute 
it  for  him  in  any  manner  in  which  it  would  be  lawful  for 
him  to  make  and  execute  it  if  acting  for  himself  in  person. 
Any  man,  although  not  a  dealer  in  wheat,  may  therefore 
lawfully  employ  a  broker  on  the  Exchange  to  sell  wheat  for 
him  for  delivery  at  a  future  time,  and  to  execute  the  con- 
tract for  him  by  purchasing  upon  the  market  the  wheat  for 
delivery  when  the  time  arrives  for  its  delivery,  or  by  settling 
with  the  purchaser  upon  the  payment  of  the  difference 
between  the  contract  price  and  the  market  price,  if  the  pur- 

'Rountree  ».  Smith,  108  U.  S.  edict,  77  N.  Y.  202 ;  Cook  ®.  Davis, 
Rep.  269;  Gilbert  v.  Guagar,  8  Biss.  53  Ib.  318;  Wilhelm  v.  Carr,  80  N.C. 
214;  Clark  t>.  Foss,  7  Ib.  551;  Jack-  294;  Brua's  App.  55  Pa.  St.  294; 
son  v  Foote,  12  Fed.  Rep.  37;  Union  North  v.  Phillips,  89  Ib.  115  ;  Dick- 
Nat.  Bank  v.  Carr,  15  Fed.  Rep.  458;  son  v.  Thomas,  93  Ib.  278  ;  Cole  v. 
Cobb  v.  Prell,  Ib.  774  ;  Bartlett  v.  Milmine,  88111.  349;  Pixley  a.Boyn- 
Smith,  13  Ib.  263;  Lehman  v.  Strass-  ton,  79  Ib.  351;  Everingham  V. 
berger ,  2  Woods,  557  ;  Rumsey  «.  Meighan,  55  Wis.  354. 
Berry,  65  Me.  574;  Bigelow  v.  Ben- 


4(52          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

chaser  shall  waive  the  execution  of  the  contract  by  the 
delivery  of  the  wheat,  according  to  its  terms."1 

§  348.  THE  "  SELLER'S  OPTION  "  CONTRACT,  VALID. — 
A  contract  for  the  future  delivery  of  commodities,  whether 
stocks,  grains,  provisions,  or  other  property,  at  a  time 
certain  absolutely,  but  with  what  is  called  a  "  seller's 
option"  for  a  definite  period  before  that  time  depends  for 
its  validity  upon  the  mutual  intentions  and  purposes  of  the 
parties.  The  option  may  refer  to  the  fact  of  delivery,  or 
merely  to  the  time  of  delivery.  If  it  be  the  bona  fide  inten- 
tion of  the  vendor  to  deliver,  and  of  the  vendee  to  receive, 
and  the  option  consists  only  in  the  time  of  delivery  within  a 
certain  period,  the  contract  is  valid.*  The  validity  of  the 
contract  where  the  intention  of  the  parties  at  the  time  of 
making  such  contract,  was,  that  the  only  option  should  be 
as  to  time  of  delivery,  is  not  affected  by  a  subsequent  agree- 
ment to  close  the  deal  by  payment  of  differences  between 
the  contract  price  and  market  value  on  or  before  the  day  of 
settlement.*  Nor  will  the  fact  that  the  vendor  has  not,  at 
the  time  of  making  such  contract  of  sale,  the  stocks,  grain, 
or  other  property  in  his  possession,  nor  does  not  expect  to 
have  them  on  hand  and  has  no  means  of  getting  the  same, 

'•Kent    v.   Miltenberger,    13    Mo.  253 ;  Disborough  v.  Ncilson,  3  Ib. 

App.  503  (Thompson  J.).  81.    And  in  stock  operations:  Bige- 

*  Jackson  v.  Footc,  12  Fed.  Rep.  low  v.  Benedict,  70  N.  Y.  202;  Cook 
37 ;  Melcliert  v.  American  Union  Tel.  v.  Davis.  53  Ib.  318 ;  Frost  v.  Clark- 
Co.  11  Ib.  193;  Union  Nut.  Bank??.  son,  7  Cow.  21  ;  Cassard  r.  Hinman. 
Carr.lSlb.  438;  Porter  e.Viets,  1  Biss.  1  Bosworth,  207;  Noycs  v.  Spauld- 
177;  Clarke  v.  Foss,  7  Ib  540  ;  Fix-  ing,  27  Vt.  420;  Hibblewhitc  e.  3Io- 
ley  v.  Boynton,  79111.851;  Wolcott  Mornic.  5  M.  &  W.  4;  Shales  v. 
c.  Heath.  78  Ib.  433  ;  Logan  v.  Mas-  Seignoret.  1  Ld.  Raym.440  ;  Ashtnn 
ick,  81  Ib.  415 ;  Cole  ».  Milmine,  88  «.  Dakin,  4  H.  &  N.  809;  Mortimer 
Ib.  349 ;  Webster  t>.  Sturges,  7  v.  McCullcn,  7  M  &  W.  20. 
Bradw.  560;  Calderwood  v.  McCrea,  *  Melchert  t>.  American  Union  Tel. 
11  Ib.  543;  Taggart  v.  Sawyer,  14  Co.  11  Fed.  Rep.  193;  Gilbert  v. 
Bush.  727  ;  Rumsey  v.  Berry,  65  Me.  Guagar,  8  Biss.  214 ;  Clarke  v.  Foss, 
574  ;  Gregory  v.  Wendell,  39  Mich.  7  Ib!  540. 
340  ;  Giles  v.  Bradley,  2  Johns.  Cas. 


THE  BROKER'S  OPTION  CONTRACT.  463 

except  by  purchase  on  the  market  on  or  before  the  day  of 
the  promised  delivery  under  the  contract,  render  it  invalid, 
if  there  be  a  bona  fide  intention  to  make  such  delivery.1 
The  advance,  as  a  part  of  such  contract,  of  margins  by  the 
customer  to  cover  fluctuations  of  prices  in  the  stocks,  or 
grain,  or  other  property,  for  which  the  option  is  sold,  pend- 
ing delivery  or  settlement  at  the  time  fixed  by  the  contract 
for  the  closing  of  the  option,  according  to  the  rules  and 
usages  of  the  Exchange  upon  which  the  deal  is  made,  is  a 
valid  transaction.* 

§  349.  OPTION  CONTRACTS,  TO  BE  SETTLED  UPON  DIF- 
FERENCES, ILLEGAL. — The  intentions  of  the  parties  to  the 
contract  is  of  controlling  effect  as  to  the  validity 
or  invalidity  of  the  trades  made  by  a  broker  for  his 
customer.  A  broker  who  agrees  with  his  customer 
to  trade  for  him  on  the  Exchange  so  that  all  deals 
shall  be  settled  by  the  payment  of  differences  only, 
and  who  makes  such  sales  or  purchases  with  third 
parties  upon  the  Exchange  with  the  like  intent,  can- 
not enforce  any  claim  founded  upon  losses  in  carrying  out 
the  contract,  as  the  same  is  illegal  and  void,  and  comes  (in 
some  states)  within  statutory  enactments  against  gaming. 
The  form  in  which  such  option  contracts  upon  speculative 
deals  is  drawn  up  is  not  conclusive  of  the  charac- 
ter of  the  deals,  as  a  jury  is  authorized  to  look  into 

1  Sawyer  v.  Taggart,  14  Bush,  727;  And  as  to  stock  operations:    Hatch 

Williams  v.  Tiedeman,  6  Mo.  App.  v.  Douglass,  48  Comi.  116;  Cassard 

269  ;  Whitehead  v.  Root,  3  Met.  587;  0.  Hindman,  1  Bosw.  207;  Bigelow 

Stanton  v.  Small,  3  Sandf.  230 ;  Me-  v.  Benedict,  70  N.  Y.  202 ;  Morris  v. 

Ilvaine  w.Edgerton,  2  Robt.422 ;  Cole  Tunbridge,  83  Ib.  92  ;  Smith  v.  Bou- 

v.  Milmine,    88  111.   349;  Logan  v.  vier,  70  Pa.  St.  325;  Grizewood  v. 

Musick,  81  Ib.  415  ;  Wolcott  fl.Heath,  Elaine,  11   C.   B.  526 ;  Mortimer  v. 

78  Ib.  433 ;  Brown  v.  Meyers,  20  Morine,  6  M.  &  W.  58 ;  Thacker  v. 

Gratt.  296;  Porter  «.  Viets,  1  Biss.  Hardy,  L.  R.  4  Q.  B.  D.  285. 

177  ;    ex    parte  Young,    6    Ib.  53 ;  *  Union  Nat.  Bauk  v.  Carr,  15  Fed. 

Clarke  v.  Foss,   7  Ib.  540;  Kibble-  Rep.  438;  s.  c.  5  McCrary,  71. 
white  v.  McMornie,  5  M.  &  W.  462. 


464         QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

the  very  transaction  itself,  and  determine  from  facts  and 
circumstances  dehors  the  option  ticket,  what  was  the 
original  contract  between  the  broker  and  customer,  and  the 
character  of  the  deal  in  which  the  agreement  is  made  that 
there  shall  be  no  delivery.  If  the  transaction  is  only  a 
speculation  in  prices  by  all  the  parties  interested,  it  is  of 
no  importance  that  the  form  assumed  for  the  transaction  is 
in  the  form  of  a  seller's  option,  valid  everywhere.1  In  order, 
however,  to  have  the  effect  stated  of  rendering  the  contract 
void,  and  to  defeat  the  recovery  of  the  broker  from  his  cus- 
tomer, it  is  essential  that  the  illegal  purpose  of  merely 
wagering  on  prices  should  be  mutual  with  both  broker  and 
customer,  and  the  third  persons  with  whom  such  deals  were 
made  on  the  Exchange.  If  such  valid  contracts  for  the  sale 
or  purchase  of  any  commodity  are  entered  by  one  of  the 
parties  in  good  faith  with  the  intention  to  perform  the 
same,  in  accordance  with  the  rules  and  usages  of  the  Ex- 
change in  which  the  deal  is  made,  they  are  sustained.  The 
broker  who,  under  such  circumstances,  has  paid  a  loss  caused 


1  Cobb  «.  Prcll,  15  Fed.  Rep.  774 ;  Cooke  v.  Davis,  53  N.  Y.  318  ;  Cam. 
Bartlett  v.  Smith,  13  Ib.  263 ;  Mel-  eron  t>.  Durkheim,  55  Ib.  425  ;  Pea- 
chert  v.  American  Union  Tel.  Co.  11  body  v.  Speyers,  56  Ib.  230  ;  Barnard 
Ib.  193;  Third  Nat.  Bank*.  Harri-  v.  Backhaus,  52  Wis.  593;  Evering- 
soii,  10  Ib.  243 ;  Gregory  v.  Wat-  ham  ».  Meighan,  55  Ib.  354.  And 
owa,  57  Iowa,  711 ;  Union  National  in  cases  of  stocks:  Dicksou  v.  Thorn- 
Bank  v.  Carr,  15  Fed.  Rep.  438;  as,  93  Pa.  St.  278;  Brua's  App.  55 
Pickering  v.  Case,  79  111.  238 ;  Lyon  Pa.  St.  299;  North  ».  Phillips,  89  Ib. 
v.  Culbertson,  83  111.33;  Corbett  v.  250;  Matlon  v.  Sheen,  75  Ib.  166  ; 
Underwood,  Ib.  324  ;  Calderwood  v.  Swartz's  App.  3  Brewst.  131  ;  Kirk- 
McCrea,  11  Bradw.  543;  Tenny  «.  patrick  v.  Bonsall,  72  Pa.  St.  155; 
Foote,  4  Ib.  591  ;  s.  c.  95  111.  109;  Maxtenu.  Ahcen,  75  Ib.  166;Fareira 
Gregory  v.  Wendell,  39  Mich.  337  ;  v.  Gabell,  89  Ib.  89;  Yerkes  v.  Salo- 
s.  c.  40  Ib.  432  ;  Sawyer  «.  Taggart,  mon,  18  Hun,  471 ;  Cassard  v.  Hiu- 
14  Bush,  727;  May  v.  Hoagland,  9  man,  1  Bosw.  20;  Bigelow  v.  Bene. 
Bush,  172;  Rudolph  v.  Winters,  7  diet,  70  N.  Y.  202;  Sampson  v.  Shaw, 
Neb.  126;  Wilhelm  v.  Carr,  80  N.  C.  101  Mass,  145;  Buck  v.  Albee,  26  Vt. 
294 ;  Rumsey  v.  Berry,  65  Me.  570  ;  184 ;  Grizewood  v.  Elaine,  11  C.  B. 
Williams  v.  Tedeman,  6  Mo.  App.  73;  Fisher  c.  Bridge,  3  El.  &B1. 642: 
269 ;  Waterman  v.  Buckland.  1  Ib.  ex  parte  Marnham,  2  DeG.  F.  &  J. 
45;  Teekes  u.  Soloman,  11  Hun,  473;  634. 


THE  BROKER'S  OPTION  CONTRACT.  465 

by  a  change  in  the  market  value,  upon  his  customer's  request, 
may  recover  the  amount  of  such  advance  from  the  cus- 
tomer, although  it  may  have  been  the  intention  of  the  latter 
simply  to  speculate  in  prices,  and  to  settle  all  trades  by 
paying  or  receiving  differences.1 

Contracts  to  sell  or  purchase  stocks  without  any  intention 
to  deliver  or  receive,  are  gaming  contracts,  and  utterly 
void.*  No  recovery  was  allowed,  the  transaction  being  re- 
garded as  a  gaming  device,  where  a  customer  directed  a 
stockbroker  to  sell  a  number  of  certain  shares  short  on  his 
account,  although  no  certificates  were  delivered  to  the 
broker.  The  contract  between  the  parties  was  that  there 
should  be  no  actual  delivery  of  the  stock,  but  that  the  cus- 
tomer was  to  protect  the  broker  from  loss  if  the  market 
value  of  the  stock  advanced,  and  to  receive  any  difference 
in  value  from  the  broker  if  it  declined.  The  broker  was  at 
liberty  to  make  an  actual  delivery  of  the  stock,  which  was 
in  fact  done,  with  stock  borrowed  for  that  purpose  by  the 
broker.  The  stock  rose  in  value,  and  losses  resulted  which 
the  broker  paid,  and  then  sued  the  customer  to  recover  the 
amount.8  In  another  action,  a  mere  bet  that  certain  stocks 
would  sell  within  a  certain  sum  in  so  many  days,  with  no 
intention  by  either  party  to  receive  or  deliver  the  stocks, 
the  promissory  notes  made  by  the  customer  to  the  broker 
and  delivered  as  margins  upon  the  deal,  were  unenforce- 
able in  the  hands  of  the  broker,  or  of  any  indorsee  not  a 
holder  for  value  without  notice.4 


'Rountree  ®.   Smith,  108    U.  S.  vary  or  change  the  illegal  character 

269;   Pixley  v.  Boynton,  79  111.  353;  of  a  wagering  contract  in  stocks,  in 

Clarke  v.  Foss,  7  Biss.  540 ;  Lehman  Farreira  v.  Gabell,  89  Pa.  St.  89. 

«.  Strassberger,  2  Woods,  559;  Wil-  8  Brua's  App.  55  Pa.St.294 ;  North 

helm*;.  Carr,  80  N.C.  294;  Sawyer  v.  v.  Phillips,   89  Ib.  250;  Bigelow  v. 

Taggart,  14  Bush,  727;  May  v.  Hoag-  Benedict,  70  N.  Y.  202 ;  Buck  v.  Al- 

land,  9  Ib.  172.     The  fact  that  some  bee,  26  Vt.  184;  Grizewood  v.  Elaine, 

of  the  parties  with  whom  the  stock-  11  C.  B.  73. 

broker  dealt  were  actual  buyers  and  8  Dickson  v.  Thomas,  93  Pa.  St. 

sellers,  and  did  not  intend  to  gam-  278. 

ble,  was  considered  insufficient  to  *  Brua's  App.  55  Pa.  St.  294. 
30 


466       QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

§  350.  THE  VALIDITY  OF  OPTION  CONTRACTS,  AS  SHOWN 
BY  EVIDENCE. — The  intention  of  the  parties  to  such  option 
contracts,  notwithstanding  the  agreements  appear  in  written 
instruments,  will  be  allowed  to  be  proved,  and  are  of  con- 
trolling importance  as  to  the  character  of  such  contract, 
whether  valid  or  not.1  Where  parties  have  been  in  the 
habit  of  dealing  in  options  illegal  in  character,  the  broker, 
seeking  to  recover  damages  in  an  action  at  law  for  breach 
of  contract  by  his  customer,  upon  deals  alleged  by  the 
customer  to  be  of  like  character,  is  required  to  show  by  a 
preponderance  of  evidence  that  the  later  transactions  in- 
volved in  the  suit  were  founded  upon  valid  option  con- 
tracts.1 The  duty  of  the  court  in  such  cases  is  **  to 
scrutinize  very  closely  these  time  contracts^,  and  if  the 
contracts  are  such  as  to  throw  doubt  upon  the  question  of 
the  intention  of  the  parties,  it  is  not  too  much  to  require  a 
party  claiming  rights  under  such  a  contract  to  show 
affirmatively  that  it  was  made  with  actual  view  to  delivery 
and  receipt  of  the  grain.'"  An  intention  to  violate  the 
law  prohibiting  gaming  contracts  is  not  presumed  where 
brokers  employed  to  trade  for  a  customer  testified  that  they 
had  no  intention  to  make  and  did  not  make  any  illegal  option 
contracts  for  their  customer,  the  other  parties  to  the  deal 
not  being  produced  at  the  trial,  nor  their  depositions  read. 
The  contracts  actually  made  were  the  valid  "  seller's  op- 
tions," the  common  contract,  and  in  some  instances  the  com- 
modity purchased  was  actually  delivered.  The  fact  alleged 
that  a  very  large  proportion  of  the  option  contracts  on  the 
Exchange  where  the  deals  were  made,  are  settled  by  pay- 


1  Cassard  t>.  Hinman,  1  Bosw.  207;  lett  v.  Smith,   13    Fed.  Rep.  263; 

Yerkes  v.  Salomon,   18  Hun,  471;  Union  Nat.  Bank  v.  Carr,  15  Ib.438. 

Bigelow  v.  Benedict,  70  N.  Y.  202;  »  Cobb  v.  Prell,  15  Fed.  Rep.  774. 

Colderwood  v.  McCrea,  11  Bradw.  'Barnard  v.  Backhaus,  52  Wis. 

543;  Dolby  v.  Spaids,  8  Ib.  549;  Far-  593.    Cited  with  approval  by  Me- 

reira  t>.  Gabell,  89  Pa.  St.  89;  Kirk-  Crary,  J.,  in  Cobb  t.  Prell,  15  Fed. 

patrick  v.  Bonsell,  72  Ib.  155;  in  re  Rep.  774 
Morgan,  2  DeG.  F.  &  J.  634;  Bart- 


THE  BROKER'S  OPTION  CONTRACT.  467 

ment  of  differences,  the  number  being  so  large  in  propor- 
tion to  contracts  in  which  actual  delivery  is  mutually 
intended  as  to  raise  an  inference  that  the  trades  in  question 
were  of  that  character,  is  not  of  itself  sufficient,  in  the 
absence  of  all  other  evidence,  to  create  a  presumption  that 
the  deals  made  for  the  customer  were  for  the  payments  of 
differences  only.1 

Evidence  may  be  introduced  tending  to  sustain  the  claim 
of  brokers  operating  on  an  Exchange,  in  an  action  for  ad- 
vances paid  on  account  of  losses  and  services  rendered,  that 
they  were  employed  as  brokers  or  commission  merchants  to 
purchase  or  to  sell  wheat  for  future  delivery,  and  that  in 
all  of  the  contracts  entered  into  by  them  with  other  par- 
ties on  the  Exchange  the  business  was  conducted  in  their 
own  name,  but  for  defendant's  benefit  and  on  his  account, 
and  in  every  instance  an  actual  delivery  of  wheat  was  in- 
tended by  them  and  the  other  parties  to  the  contract.4  The 
same  evidence  was  given  by  a  number  of  stockbrokers  on 
the  New  York  Stock  Exchange,  establishing  bona  fide 
purchases  and  sales  in  a  "short"  stock  option,  where 
an  action  of  assumpsit  was  brought  by  the  broker  to 
recover  moneys  paid  out  and  commissions,  and  the  defense 
was  that  the  speculation  was  a  mere  stock  jobbing  transac- 
tion, to  be  settled  upon  differences  only.*  In  another  case, 
where  an  attempt  was  made  to  set  up  illegality,  in  the  con- 
tracts between  a  broker  and  his  customer,  as  a  defense  to 
an  action  to  enforce  a  guaranty  of  a  negotiable  promissory 
note,  given  in  settlement  of  the  account,  with  other  like 
notes  made  by  the  customer,  and  received,  before  maturity, 
by  a  bona  fide  pledgee  for  value,  advanced  upon  the  dis- 
count of  a  note  of  the  broker,  with  the  other  note  executed 
by  a  third  person  and  guaranteed  by  the  customer,  indorsed  as 
collateral  security.  It  was  shown  in  evidence  that  the 

'Rountree  t>.  Smith,  108  U.  S.  'Smith  v.  Bouvicr.  70  Pa.  St. 
269.  825. 

»  Bartlett  v.  Smith,  13  Fed.  Rep. 
263. 


468          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

options  dealt  in  were  valid,  and  that  the  broker,  at  the 
time  of  the  first  engagement,  explained  to  the  customer 
that  by  reason  of  his  having  many  buyers  and  sellers  as 
customers,  he  might  arrange  so  as  to  avoid  delivery  upon 
his  deals,  was  without  effect  upon  the  character  of  the  valid 
deals  actually  made,  and  formed  no  defense  to  the  guaranty 
in  the  hands  of  a  pledgee  for  value,  without  notice.1 

§  351.  EVIDENCE  OF  INTENTION,  UPON  ACTION  ON  CON- 
TRACT BY  BROKER. — Evidence  to  establish  the  intention  of 
parties  to  settle  upon  differences  only,  in  cases  where  the 
broker  seeks  to  recover  moneys  paid  by  him  for  losses,  by 
an  action  upon  his  contract  with  the  customer  is  properly 
given  by  the  parties.  Where  such  agreement  has  not 
assumed  a  written  form,  the  intention  of  the  parties  may  be 
learned  from  their  conversations  and  correspondence.  If  it 
be  established  by  evidence  that  the  mutual  intentions  of 
both  parties  were  that  no  deliveries  of  the  commodities 
bought  or  sold  for  the  customer  should  be  made,  and  that  all 
deals  should  be  settled  upon  .the  payment  or  receipt  of 
differences  merely,  no  recovery  by  the  broker  is  permitted 
for  a  breach  of  such  contract,  in  the  event  of  losses  paid  by 
him,  the  contract  itself  being  illegal  and  void.'  The  illegal 
character  of  such  deals,  established  by  evidence,  where  the 
parties,  both  broker  and  customer,  join  in  the  intention  to 
deal  in  nothing  but  speculations  on  prices,  will  defeat  any 
claim  of  the  broker  against  the  customer  founded  upon  losses 
paid  in  such  transactions,  although  he  shows  by  the  testi- 
mony of  other  brokers  upon  the  Exchange,  that  some  of  the 
deals  made  were  with  actual  sellers  and  buyers,  not  intend- 
ing to  gamble.8 

The  rule  applied  to  the  broker,  defeating  his  recovery 

1  Jackson  v.  Footc,  11  Fed. Rep. 37.  Backhaus,  52  Wis.  593 ;  Pickerings. 

»  Cobb  v.  Prell,  15  Fed.  Rep.  774  Cease,  79  111.  328;  Lyon  ».  Culbcrt- 

(McCrary,  J.) ;  Melchcrt  v.  American  son,  83  111.  83. 
On..  Tel.  Co.  11  Ib.  193;  Gregory  v.         «  Faricra  v.  Gabell,  89  Pa.  St.  89. 
Wendell,  89  Mich.  837;  Barnard  t>. 


THE  BROKER'S  OPTION  CONTRACT.  469 

upon  mere  gaming  speculations,  is  enforced  against  the  cus- 
tomer, where,  after  trading  upon  differences,  through  a 
broker,  upon  margins  and  securities  deposited,  until  the 
same  are  exhausted,  he  seeks  to  recover  the  same,  or  the 
value  thereof,  from  the  broker.  Neither  party  to  illegal  and 
void  gaming  contracts  will  be  aided,  by  a  court  of  law  or 
of  equity.1 

§  352.  THE  BROKER'S  OPTION  CONTRACT  VALID,  UPON 
PURCHASE  OF  STOCK. — Option  contracts,  although  the  cus- 
tomer's intention  to  settle  by  paying  or  receiving  differences 
be  known  to  the  broker,  are  supported  where  the  broker 
actually  purchases  the  agreed  commodity  upon  the  contract. 
The  fact  that  the  broker  accepted  the  order  on  the  implied1 
terms  and  understanding  that  he  would  not  be  called  upon 
by  the  customer  to  deliver  the  stocks,  nor  that  the  customer 
would  pay  for  the  same,  but  that  the  intention  was  that  the 
stocks  should  be  resold  by  the  broker  for  the  customer 
before  the  day  of  payment  arrived,  and  that  the  latter 
should  either  pay  or  receive  on  the  re-sale,  the  difference, 
after  allowing  the  broker's  charges,  is  not  sufficient  to 
defeat  the  claim  of  the  broker.*  The  like  rule  was  applied 
in  a  case  where  an  order  was  given  to  a  stockbroker :  "  I 
want  to  buy  say  100  shares  of  Union  Pacific  on  margin  ;  will 
you  take  $1,000' first  mortgage  bond  N.  Y.  &  O.  R.  R.,  and 
do  it?"  The  stock  was  bought  by  the  broker,  and  subse- 
quently sold  at  a  profit,  and  other  speculative  stock  trans- 
actions followed,  resulting  in  losses  exceeding  the  value  of 
the  collateral.  The  broker  had  made  actual  purchases  of 
stock,  and  was  ready  to  transfer  the  same  to  the  customer 
on  payment  of  the  balance  of  the  purchase  money,  after 
crediting  the  sum  realized  from  the  sale  of  the  collateral. 
As  the  transactions  were  made  upon  valid  options,  and  not 
for  the  payment  of  differences  merely,  the  customer  was 

1  Gregory  v.   "Wendell,   39  Mich.         *  Asliten  v.  Daken,  4  Hurls.  &  N. 
837  ;  Buck  v.  Albee,  26  Vt.  184.  867. 


470          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

required  to  pay  the  losses.1  The  following  transaction,  an 
operation  on  the  London  Stock  Exchange,  is  supported,  as 
not  coming  within  the  definition  of  a  mere  wager.  A  mem- 
ber of  the  Stock  Exchange  loans  another  member,  on  a 
deposit  of  shares,  a  sum  of  money  equal  to  their  market 
value,  such  sum  to  be  repaid  on  the  next  settling  day, 
and  if  not  paid,  then  according  to  the  rules  of  the  Stock 
Exchange,  the  holder  is  entitled  to  retain  the  shares  at  the 
market  price  of  that  day,  the  difference  in  value  to  be  paid 
by  the  lender  to  the  borrower,  or  vice  versa,  as  the  shares 
may  rise  or  fall  in  value.  If  the  loan  is  not  paid,  the  trans- 
action is  carried  over  to  the  next  settling  day,  upon  the  then 
market  value,  the  borrower  paying  differences.  This  oper- 
ation was  in  one  case  several  times  repeated,  and  at  last  the 
pledger  became  insolvent,  and  the  pledgee  took  the  shares 
which  were  worth  less  than  the  amount  due,  and  was 
allowed  to  prove  for  the  balance  of  the  loan  in  bankruptcy 
proceedings.9 

A  transaction  was  sustained  as  valid,  where  a  customer 
employed  a  broker  to  sell  stock  at  a  certain  price,  to  be  deliv- 
ered on  a  particular  day,  and  the  stock  was  sold  as  ordered. 
At  the  time  of  delivery,  prices  having  risen,  the  broker  was 
obliged  to  borrow  stocks,  the  customer  having  none,  and 
afterwards,  under  instructions,  bought  stocks  at  a  yet  higher 
price,  to  replace  those  borrowed.  The  customer  was  re- 
quired to  pay  the  difference,  as  a  deal,  although  a  specula- 
tion in  stocks,  when  founded  on  a  sale  and  purchase  thereof, 
is  not  an  invalid  contract.8  An  agreement  for  the  sale  ami 
transfer,  at  a  future  day  and  for  a  specific  price,  of  a  given 
number  of  shares  of  stock  which  the  vendor  then  actually 
had,  and  of  which  an  actual  transfer  was  intended,  is  not  a 
stock- jobbing  or  wagering  contract.4  A  vendor  of  stock,  of 
which  he  was  not  at  the  time  of  sale  possessed,  but  which 

1  Hatch  «.  Douglass,  48  Conn.  110.  paid  on  several  successive  settling 

*  Ex  parte  Phillips.  2  DeG.  F.  &  J.  days.    Ex  parte  Morgan,  Ib.  37. 

84.    The  rule  is  applied  to  a  sale         *  Smith  v.  Bouvier,  70  Pa.  St.  825. 

of  stocks    where    differences  were         4  Noyes  t>.  Spaulding,  27  Vt.  4U. 


THE  BROKER'S  OPTION  CONTRACT.  471 

he  afterwards  bought  and  caused  to  be  transferred  to  the 
vendee,  is  entitled  to  an  action  for  the  price.1 

§  353.  OTHER  OPTION  CONTRACTS  HELD  VALID. — An 
option  contract,  whereby  A,  for  a  valuable  consideration, 
agreed  to  receive  from  B  at  any  time  within  six  months 
from  the  date  of  the  contract  $2,500  United  States  gold 
coin,  and  to  pay  therefor  in  good  current  funds  at  the  rate 
of  $1.95  in  currency  for  every  $1.00  in  coin,  the  contract 
expressly  declaring  that  B  did  not  contract  to  deliver  the 
coin,  but  to  pay  the  consideration  for  the  privilege  of  deliv- 
ering it  or  not  at  his  option,  is  a  valid  option  contract  with 
no  inherent  vice  therein,  under  the  general  rule  that  a 
vendor  of  commodities  who  expects  to  acquire  or  produce 
them  in  time  for  a  future  delivery,  and  is  not  willing  to 
enter  into  an  absolute  contract  to  deliver,  and  yet  is  anxious 
to  create  a  market  for  them,  may  bargain  for  an  option, 
which  while  relieving  him  from  liability,  permits  him  to 
make  a  sale  if  he  is  able  to  deliver.8  A  "  call "  was  sold, 
for  a  consideration,  the  seller  agreeing  to  deliver  at  any 
time  within  six  months,  five  thousand  barrels  of  oil.  The 
contract  was :  "  If  this  oil  is  called  for,  this  call  becomes  a 
contract ;  ten  days'  notice  shall  be  given,  and  the  under- 
signed, or  his  assigns,  agree  to  receive  and  pay  for  the  same 
at  10£  cents  per  gallon."  While  evidence,  with  other  facts, 
of  the  intentions  of  the  parties,  either  to  gamble  or  not,  the 
contract  on  its  face  was  not  an  illegal  deal.8 

§  354.  THE  BROKER'S  OPTION  DEALS  ON  BOARDS  OF 
TRADE. — The  option  deals  on  Boards  of  Trade  are  gener- 
ally the  usual  contracts  known  as  "  seller's  option,"  by 
which  the  vendor  has  a  choice  as  to  the  time  of  delivery  of 

1  Mortimer  v.  McCullan,  7  Mels.&      240  ;  Railroad  Company  v.  Dane,  43 
W.  20.  N.  Y.  240 ;  Brown  v.  Hall,  5  Lans. 

2  Bigelow  v.  Benedict,    70  N.  Y.      180. 

202  ;  Disborougli  v.  Neilson,  3  Johns.          s  Kirkpatrick  v.  Bonsall,  72  Pa.  St. 
Cas.  81 ;  Stanton  v.  Small,  3  Sandf.      155. 


472          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

the  goods  sold  being  the  terra  during  which  such  option 
runs,  but  is  bound  to  deliver  at  the  expiration  of  the  time. 
The  delivery  by  the  seller  is  provided  for  by  the  terms  of 
the  contract,  and  by  the  rules  and  regulations  of  the  several 
Boards,  and,  is,  unless  settlement  be  otherwise  made,  re- 
quired, under  penalty  of  discipline  and  possibly  expulsion 
from  the  Exchange.  The  deal,  however,  may  be  closed  at  any 
time  during  the  option  by  a  bona  fide  settlement,  without 
delivery,  or  by  an  arrangement  with  other  firms  by  a  process 
known  as  "  ringing  out,"  or  a  kind  of  clearing  house,  by 
which  several  trades  are  settled  at  once.  Such  arrangements, 
however,  are  only  matters  of  convenience.  Clearing  houses, 
under  the  management  of  such  Boards,  performing  the  same 
duties  as  the  clearing-house  of  the  New  York  Stock  Ex- 
change, are  in  operation.1 

§355.  THE  OPTIONS  KNOWN  AS  "PUTS,"  "CALLS," 
*'  STRADDLES,  "  AND  "  SHAVES." — The  option  called  a. 
"put"  is  a  privilege  given  for  a  consideration  of  deliver- 
ing, or  not  delivering,  as  the  seller  may  elect,  of  a 
quantity  of  grain,  or  stocks,  or  other  property,  within 
a  certain  time,  at  a  specified  price.  The  party  sell- 
ing the  privilege  agrees  that  if  delivery  be  made 
within  tl*3  specific  time  he  will  pay  for  the  prop- 
erty at  the  price  named,  or  the  differences,  otherwise 
the  seller  of  the  privilege  pockets  the  money  paid  therefor. 
A  "call"  is  the  opposite  of  a  "  put,"  the  privilege  being 
to  call  or  not  to  call  for  delivery  at  the  price  agreed  upon.1 

1  Gilbert  v.  Guager,    8  Biss.  214 ;  This    contract     is    subject    in    all 

Clark®.  Foss,  7  Ib.  581.    The  seller's  respects  to  the  rules  and  regulations 

option  contract  is  as  follows:  of  the  Board  of  Trade  of  the  city  of 

"[Grain  Contract.]  Chicago. 

CHICAGO, ,  188... — We         The  buyer's  contract  given  to  the 

have  this  day  sold  to seller  is  the  frame,  except  in  the  use 

bushels,  No ,  in  store,  at of  the  word  "bought"  in  place  of 

per  bushel,  to  be  delivered  at  seller's  "sold." 

option  during  the  month  of •  Ex  parte  Young,  6  Biss.  53;  in 

188..,  in  lots  of  5,000  bushels  each.  re  Green,  7  Ib.  338;  in  re  Chandler, 


THE  BROKER'S  OPTION  CONTRACT.  473 

A  "  straddle  "  is  an  option  which  includes  the  double 
privilege  of  a  "  put  "  and  "  call,"  and  secures  to  the  holder 
the  right  to  demand  of  the  seller  at  a  certain  price  within  a 
certain  time  a  certain  number  of  shares  of  specified  stock 
or  other  property,  or  to  require  him  to  take  at  the 
same  price  within  the  same  time  the  same  shares 
of  stock  or  other  commodity.  •  The  time  for  which 
such  double  option  shall  continue  is  a  matter  of 
contract.1  The  value  of  a  "  straddle  "  as  of  a  kt  put " 
or  "  call"  depends  upon  the  fluctuations  of  the  stock  or 
other  property  selected.  The  wider  the  range  of  these 
fluctuations  up  or  down  the  greater  the  amount  which  may 
be  realized.  The  longer  the  option  continues,  the  greater 
the  chance  of  such  fluctuations.2  A  "  shave  "  is  a  contract 
of  a  broker,  upon  consideration,  to  hold  and  carry  stock  in 
his  customer's  name  for  thirty,  or  sixty,  or  any  other  number 
of  days,  as  the  case  may  be,  in  order  that  the  customer  may 
have  the  advantage  of  any  rise  in  price  that  may  happen 
in  the  meantime,  the  understanding  being  that  he  is  also 
to  make  good  any  fall  in  price.  In  neither  case,  is  it  in- 
tended by  the  parties  that  there  shall  be  a  delivery  of  the 


13  Am.  L.  R.  (N.  S.)  310.  The  "put"  ing,  and   it  is  the  contracting  for 

contract  on  grain  is  as  follows:  such  choice,  right,  or  privilege  of 

"CHICAGO ,  188...  selling  or  buying  at  a  future  time 

Received  of  A  $..  in  cousidera-  any  commodity  the  statute  was  in- 
tion  of  which  we  give  him,  or  the  tended  to  prohibit  as  contra-disl in- 
bolder  of  this  contract,  the  privilege  guished  from  an  actual  sale  or  pur- 
of  delivering  to  us  or  not,  prior  to  chase,  with  the  intend  n  of  deliver- 

three    o'clock     P.    M.    of ing  or    accepting    the    commodity 

188-.,  by  notification  or  delivery,  spccitied."  Tenny  v. Foote,  4Brad\v. 

bushels  No regular  receipts,  594;  aff.  95  111.  109. 

at cents  per  bushel,   in  store,  '  Harris  v.  Tunbridge,  83  N  Y.  92; 

and,  if  delivered,  we  agree  to  receive  Story  v.  Salomon,  71  Ib.  420;  Yerkcs 

and  pay  for  the  same  at  the  above  v.  Salomon,  18  Hun,  471. 

price.                                           B."  8  Ex  partc  Young,  6  Hiss.  53;  in  re 

The    word  "options"  in    the    Illi-  Chandler,  13  Am.  L.  R.  N.  S.  310; 

nois  statute   against  gambling  has  Harris     v.    Tuubridge,    83    N.    Y. 

been  held  to  mean  "a  mere  choice,  92. 

right,  or  privilege  of  selling  or  buy- 


474          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

stock.1  The  option  deals  described  as  "puts r'  and  "  calls," 
have  been  declared  illegal,9  and  also  the  "  shave."*  In  the 
case  of  the  "  straddle,"  the  question  of  legality  depends 
upon  the  evidence,  as  in  cases  of  stock  speculation,  it  is 
not  considered  as  a  wagering  contract,  nor  is  any  illegal 
intent  presumed.  Where  losses  resulted  from  the  wrongful 
neglect  of  a  broker  operating  a  "  straddle,"  the  contract  was 
held  so  far  valid  that  the  customer,  a  woman,  was  allowed 
damages  for  the  tort.4 

'North  «.  Phillips,  89  Pa.  St.  6  Biss.  53;  Rudolph  v.  Winters,  7 

250.  Neb.  126. 

»  Pixley  v.  Boynton,  79  111.  533;  «  North  v.  Phillips,  89  Pa.  St.  250. 

Pickering  v.  Cease,  Ib.  327;  in  re  4  Harris  fl.Tunbridgc,  83  N.Y.  92; 

Chandler,  supra ;  ex  parte  Young,  Stoiy  v.  Salomon,  71  Ib.  420. 


THE  BROKER'S  SUIT.  475 


CHAPTER  XXXVI. 

THE  BROKER'S  SUIT  AGAINST  CUSTOMER. 

§356.  The  broker's  recovery  against  his  customer. 

357.  Payment  by  broker  of  differences,  upon  customer's  request. 

358.  The  broker's  recovery  on  bills  and  notes  given  for  differences. 

359.  No  recovery  allowed  broker  upon  illegal  transactions. 

360.  Other  limitations  of  the  broker's  recovery. 

361.  No  recovery  under  illegal  contracts  to  "  corner." 

362.  Relief  to  the  customer,  when  given. 

§  356.  THE  BROKER'S  RECOVERY  AGAINST  HIS  CUS- 
TOMER.— The  recovery  of  the  broker  against  his  customer, 
where  upon  a  failure  to  put  up  further  margins,  or  upon  an 
order  to  close  the  deal,  the  trade  is  settled  at  a  loss,  which 
the  broker  pays,  at  his  customer's  request,  express  or  im- 
plied, is  sustained  where  the  contracts  between  the  parties, 
and  those  made  on  the  Exchange,  are  valid.  It  is  also  well 
settled  that  the  customer  is  liable  to  the  broker  in  an  action 
for  money  paid  and  services  performed,  although  the  deals 
were  intended  by  the  customer  to  be  mere  wagers  or  bets 
on  the  rise  or  fall  of  prices,  the  actual  trades  made  having 
been  upon  valid  option  contracts,  or  the  property  actually 
bought  or  sold,  for  the  customer's  account,  in  the  name  of 
the  broker.  The  liability  of  the  customer  to  pay  in  such 
action  is  not  affected  even  where  the  contracts  made  upon 
the  Exchange,  while  valid  upon  their  face,  are  intended 
by  the  parties  to  be  settled  by  the  payment  of  differences. 
The  action  is  independent  of  the  contracts  made  upon  the 
Exchange,  and  any  taint  of  immorality  which  might  attach 
if  the  action  were  upon  mere  wagering  contracts,  forms  no 
defense  to  a  suit  by  the  broker  for  moneys  paid  upon  re- 


476 


QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


quest  and  services  performed.  The  customer  is  not  allowed 
to  gamble  at  the  expense  of  the  broker,  who  does  the  work, 
and  generally  advances  ninety  per  cent,  of  the  money  re- 
quired to  purchase  the  stocks,  or  pays  the  losses  upon  the 
closing  out  of  the  deal  in  transactions  ,in  other  commodi- 
ties.1 The  rule  is  also  applied  where  there  has  been  a  set- 
tlement between  the  parties  upon  the  speculative  deals 
made  by  the  broker  for  his  customer,  in  which  losses 
have  been  made,  and  the  customer  has  executed  promis- 


'Rountree  v.  Smith,  108  U.  S. 
Rep.  269;  Armstrong  ».  Toler,  11 
"Wheat.  274;  Gilbert  «.  Guager,  8 
Biss.  214,  217;  Clark  t>.  Foss,  7  Ib. 
551 ;  Third  National  Bank  v.  Harri- 
son, 10  Fed.  Rep.  243,  Tinsley's  case, 
n.;  Bartlctt  v.  Smith,  13  Ib.  263; 
Lehman  v.  Strassberger,  2  Woods, 
554;  Owen  «.  Davis,  1  Bail.  (S  C.) 
815;  Rumsey  v.  Berry,  65  Me.  570; 
Warren  «.  Hewitt,  45  Geo.  501; 
Smith  v.  Bouvicr,  70  Pa.  St.  825; 
Durantfl.  Bart,  98  Mass.  161 ;  Thack- 
er  u.  Hardy,  L.  R.  4  Q.  B.  D.  685. 
In  Tinsley's  case,  supra,  aff.  Bank  v. 
Tinsley,  11  Mo.  App.  259,  where  a 
broker  recovered  money  paid  for 
losses  on  invalid  option  contracts,  at 
the  customer's  request,  the  court 
(Thayer,  J.)  say:  "  There  are  cases 
arising  between  factors  and  brokers 
and  their  principals  which  the  courts 
have  apparently  treated  as  though 
the  action  was  between  the  princi- 
pals to  the  illegal  transaction.  But 
the  different  relations  existing  be- 
tween the  agent  and  his  principal, 
in  actions  by  the  former  to  recover 
monies  expended  for  his  principal 
in  settlement  of  losses  on  wagering 
contracts,  was  apparently  not  called 
to  the  attention  of  the  court."  Citing 
Gregory  v.  Wendell,  89  Mich.  837; 
Williams  v,  Tiedeman,  6  Mo.  App. 


269.  In  Smith  «.  Bouvier,  supra,  an 
action  of  assumpsit  for  losses  paid 
on  speculative  stock  transactions, 
the  court  (Thompson,  C.  J.)  say: 
"  It  was  sought  to  instruct  the  jury 
that  all  purchases  of  stocks,  with  a 
view  to  re-sale  and  make  a  profit  on 
.their  rise,  or  contracts  to  furnish 
Blocks  on  time,  should  be  declared 
gambling  transactions  and  unlawful, 
not  only  between  the  buyer  and 
seller,  but  as  to  the  brokers  or  jigents 
through  whom  the  sales  and  pur- 
chases had  been  made.  This  would 
make  a  great  inroad  into  what  has 
for  an  indefinite  period  been  regard- 
ed as  a  legitimate  business,  and 
would  either  destroy  it  altogether, 
or.  continued,  put  the  brokers  at  the 
mercy  of  those  for  whom  they  trans- 
act such  business.  Let  it  be  under- 
stood that  a  broker  has  no  power  to 
recover  either  for  advances  or  com- 
missions, however  honestly  he  may 
have  dealt,  and  there  will  be  found' 
enough  persons  whose  easy  con- 
sciences would  throw  the  loss  upon 
the  shoulders  of  those  who  advanced 
the  money  and  earned  commissions 
in  their  service.  It  would  be  a  very 
palpable  wrong  to  the  brokers  who 
are  licensed  to  do  such  business,  if 
such  were  held  to  be  the  law." 


THE  BROKER'S  SUIT.  477 

sory  notes  or  indorsed  over  other  commercial  paper  executed 
by  third  parties.  It  is  no  defense  as  against  such  paper  that 
the  contracts  made  on  the  Exchange  Avere  intended  to  be 
settled  by  the  payment  of  differences,  although  valid  on 
their  face.  In  such  case,  the  promise  is  express  to  pay  the 
money  advanced  and  the  commissions  earned ;  in  the 
other,  it  is  implied,  as  every  customer  is  bound  by  the  rules 
of  the  Exchange  in  which  he  employs  a  broker  to  deal,  and 
failure  of  the  broker  to  pay  such  losses  may  result  in  sus- 
pension and  possibly  expulsion.1 

§  357.  PAYMENT  BY  BROKER  OF  DIFFERENCES,  UPON 
CUSTOMER'S  REQUEST. — Where,  after  a  broker  or  commis- 
sion merchant  lias  made  for  a  customer  a  valid  contract  for 
the  purchase  or  sale  of  stocks  or  grain,  or  other  commodities, 
and  by  reason  of  the  adverse  condition  of  the  markets,  he  is 
directed  by  his  customer  to  settle  with  the  buyers  or  sellers 
before  the  maturity  of  the  contract,  and  by  reason  thereof 
pays  the  differences,  exceeding  in  amount  the  collaterals 
and  margins  deposited  by  the  customer,  an  action  accrues 
to  the  broker  against  his  customer  for  the  money  paid  and 
and  his  commissions.*  The  right  of  the  broker  to  collect 
money  paid  at  his  request,  and  for  services  rendered,  was 
approved  in  a  case,  where  a  customer  employed  a  broker  to 
sell  ten  thousand  bushels  of  wheat  at  a  certain  price  to  be 
delivered  at  a  certain  time,  depositing  $700  as  a  margin,  and 
contracts  for  its  sale  were  accordingly  made.  The  broker 
knew  at  the  time  the  customer  had  no  wheat.  The  market 
price  of  wheat  continued  to  rise,  until  the  transaction  finally 
resulted  in  a  loss  of  about  $3,000,  which  was  paid  by  the 
broker.  He  was  allowed  to  recover  the  balance  of  the  debt 
from  the  customer,  after  crediting  the  collateral  fund.8  An 

1  Jackson  v.  Foote,  12  Fed.  Eep.          *  Gilbert  v.  Guager,  S  Biss.  214. 
37 ;  Clark  v.  Foss,  7  Biss.  540 ;  Leh-         •  Rumsey  v.  Berry,  65  Ale.  570. 
maim  v.  Strassberger,  2  Woods,  554; 
Third  Nat.  Bank  p.  Harrison,  10  Fed. 
Rep.  243. 


478          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

action  of  assumpsit  was  supported,  when  brought  by  brokers 
against  a  customer  for  money  laid  out  and  expended  in  the 
purchase  and  sale  of  stocks,  the  transaction  being  a  specu- 
lation based  upon  bona  fide  sales  and  purchases  of  stocks  by 
the  brokers. 

The  Court  of  Queen's  Bench  of  England,  in  a  late 
case,*  sustained  the  recovery  of  a  broker,  as  being  founded 
upon  valid  stock  options,  where  a  customer  engaged  a 
broker  to  speculate  for  him  on  the  London  Stock  Exchange, 
knowing  that,  by  the  rules  of  that  body,  the  broker  would 
have  to  enter  into  valid  contracts  to  buy  and  sell  stocks, 
and  incur  the  risk  of  having  to  accept  and  pay  for  or  to 
deliver  the  stocks  covered  by  his  speculations.  The  broker 
knew  that  the  customer  was  not  of  sufficient  financial  ability 
to  pay  for  or  deliver  the  stocks  proposed  to  be  sold  or  bought, 
and  did  not  expect  or  intend  to  accept  delivery  nor  to 
deliver  stocks  sold  on  his  account.  The  intention  of  the 
customer  was  that  the  broker  should  so  arrange  the  deals, 
that  nothing  but  differences  should  be  paid  by  or  payable  to 
him.  The  broker  made  actual  sales  and  purchases,  accord- 
ing to  the  rules  of  the  Exchange.  Upon  default  of  the  cus- 
tomer, the  broker  was  obliged  to  pay  a  large  sum  for  losses  ; 
and  in  an  action  against  the  customer,  was  allowed  to 
recover  the  money  advanced  and  commissions  earned.  The 
recovery  of  a  broker,  who  has,  upon  the  settlement  of  void- 
able contracts,  for  stocks  made  upon  the  Exchange,  for  the 
benefit  of  a  customer,  paid  sums  due,  upon  request,  although 
for  differences  only,  has  always  been  supported  by  the 
English  courts.1 

1  Smith  v.  Bouvier,  70  Pa.  St.  825.  Exch.  465 ;  Knight ».  Cambers,  15  C. 

»  Thacker  v.  Hardy,  L.  R.  4  Q.  B.  B.  563  ;  Olds  v.  Harrison,  10  Ex.  572; 

D.685.   The  like  result  was  reached,  Farmer  v.  Russell,  1  Bos.  &  P.  296  ; 

upon  similar  facts,  in  grain  specula-  Jcssopp  «.  Lutwyche,  10  Ex.  614 ; 

tions,  in  Jackson  v.  Foote,  12  Fed.  Falkney  «.  Reynous,  4  Burr.  2069 ; 

Rep.  37.  Tenant  «.  Elliott,  1  B.&  P.  3 ;  Petrie 

1  Rosewarner  v.  Billings.  15  C.  B.  c.  Hannaway,  8  Term,  418. 
N.  8.  316  ;  Pidgeon  v.  Burslem,  8 


THE  BROKER'S  SUIT.  479 

§  358.  THE  BROKER'S  RECOVERY  UPON  NOTES  GIVEN 
FOR  DIFFERENCES. — A  broker,  who  has  paid  losses  at  his 
customer's  request,  upon  valid  option  contracts  for  the  sale 
of  commodities  for  future  delivery,  upon  an  agreement  or 
understanding  with  the  customer  that  the  trades  should  be 
settled  by  the  payment  of  differences  only,  is  entitled  to 
enforce  the  payment  of  promissory  notes  given  by  the  cus- 
tomer in  settlement  thereof,  as  the  liability  of  the  customer 
upon  the  notes  is  supported  by  a  good  consideration  in 
money  advanced  and  services  performed,  independently  of 
any  prior  contract  between  the  parties  which  may  have 
been  tainted  with  illegality.1  Promissory  notes,  secured  by 
mortgage,  executed  by  a  customer  to  secure  the  payment  of 
moneys  advanced  by  the  broker  or  commission  merchant  to 
pay  losses  resulting  from  transactions  in  option  deals  illegal 
in  their  character,  are  enforced  as  not  necessarily  contam- 
inated by  the  vice  of  the  original  contracts  as  made  upon 
the  Exchange.4  Nor  will  a  statutory  provision  making  void 
notes  executed  in  consideration  of  "  money  won  at  any 
game  or  gambling  device,"  apply  to  a  note  given  upon  a 
wager  on  the  future  price  of  grain,  although  there  was  no 
intention  by  either  party  to  make  delivery.3  A  guaranty  of 
the  payment  of  a  promissory  note  of  a  third  person  given  in 
settlement  of  accounts  by  a  customer  to  a  broker,  where  the 
option  contracts  involved  might  have  been  illegal  at  com- 
mon law,  but  did  not  come  within  the  definition  of  gaming 
options  in  a  criminal  code,  will  not  be  defeated  by  this 
equity  in  the  hands  of  a  bona  fide  pledgee  for  value  receiv- 
ing them  for  an  advance  to  the  brokers,  and  seeking  to 
enforce  such  guaranty,  upon  default  in  the  payment  of  the 
principal  claim.4 

§  359.  NO  RECOVERY  ALLOWED  THE  BROKER  FOR  AD- 
VANCES FOR  ILLEGAL  TRADES. — The  aid  of  courts  is  not 

1  Lehmann     v.     Strassberger,    2         *  Third  National  Bank  t.  Harri- 
"Woods,  554.  son,  10  Fed.  Rep.  243. 

*  Clark  v.  Foss,  7  Biss.  540.  4  Jackson  v.  Foote,  12  Fed.  Rep.  37. 


480         QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

given  to  brokers  or  commission  merchants,  to  recover  losses 
paid  or  commissions,  where  such  broker  or  commission  mer- 
chant has  furnished  funds  under  an  agreement,  expressed 
or  implied,  to  enable  the  customer  to  deal  in  mere  specula- 
tions on  future  prices,  or  illegal  options.  Promissory  notes 
given  in  settlement  of  such  advances  cannot  be  enforced  by 
the  parties,  and  where  they  are  rendered  void  by  statute, 
are  worthless  even  in  the  hands  of  a  bona  fide  holder  for 
value.  Such  speculations,  without  any  intention  of  either 
party  to  deliver,  are  mere  bets  or  wagers,  the  person  advanc- 
ing the  stake  having  no  claim  to  the  aid  of  legal  process  to 
recover  his  money.  Being  obliged  to  rely  upon  illegal  and 
void  contracts  to  establish  his  claim,  no  aid  is  given  the 
broker.1  An  indorsement  of  negotiable  paper  made  as  col- 
lateral security  by  a  customer  to  secure  money  advanced  by 
a  broker  in  order  to  prosecute  the  illegal  ventures  of  the 
customer,  and  to  indemnify  the  broker  from  loss  by  reason 
of  the  ventures  being  made  in  his  name  and  not  that  of  the 
customer,  is  void,  and  no  recovery  can  be  obtained  thereon.* 
The  transfer  of  commercial  paper  by  a  customer  to  a  broker, 
under  such  circumstances,  although  ostensibly  as  margins 
to  protect  the  broker  in  his  purchases,  is  but  putting  up  a 
stake  in  a  game  of  chance.  No  greater  rights  are  acquired 
by  the  broker,  or  by  parties  charged  with  knowledge,  than 
under  an  indorsement  tainted  with  forgery.  The  ownership 
of  such  paper  remains  in  the  customer,  and  upon  notice  to 
the  drawee  of  a  bill  of  exchange  or  maker  of  a  promissory 
note,  given  as  margins  upon  gambling  options,  not  to  pay 

1  Armstrong  v.  Toller,  11  Wheat.  v.  Ryan,  3Dcnio,  340;  Kirkpntrick  ». 

258;  in  re  Green's  case,  7  Biss  338;  Bonsall.  72  Pa.  St.  155;  Farcira  v. 

s.  c.  15  N.  B.  R.  198 ;  Third  National  Gabcll,  89  Ib.  89;  Dickson  v.  Thorn- 

Bank  v.  Harrison,  10  Fed.  Rep.  243;  as,  93  Ib.  278;  Hooker  v.  Knab,  2<5 

Bartlett  v.  Smith,  13  Fed.  Rep.  203;  Wis.  211;  Cannon  v.  IJrycc,  3   15.  & 

Tenny  v.  Foote,  4  Bradw.  594;  s.  c.  Aid.  179;  McKtnnell  v.  Robinson,  a 

95  111.  109;  Henderson  v.  Palmer,  71  M.  &  W.  434. 

Ill  579;  Lyon  «.  Culbertson,  83  Ib.  *  Tinsloy's  case,  10  Fed.  Ri-p.  243, 

33;  Pickering  v.  Case,  79  Ib.   328;  245,  ;i.;  aff.  11  Mo.  App.  209. 
White  v.  Bass,  3  Cush.  148;  Ruckinan 


THE  BROKER'S  SUIT.  481 

the  same,  the  drawee  or  maker  will  be  charged  with  the 
amount  of  the  paper  if  afterwards  they  pay  the  same.1 

The  like  rules  apply  to  guaranties  of  commercial  paper 
made  by  a  customer  and  transferred  to  brokers  in  settlement 
of  illegal  gambling  speculations  upon  Exchanges.  All  bills 
and  notes  given  in  connection  with  mere  speculations  in 
prices  or  illegal  options,  are  made  void  by  statute,  and  a 
guaranty  indorsed  thereon,  is  unenforcible  even  in  the 
hands  of  a  holder  for  value,  without  notice.2  Nor  will  a 
compromise  between  the  parties  to  such  void  contracts  be 
supported,  being  tainted  with  the  illegality  of  the  prior 
transactions.  No  compromise  is  possible  on  the  question  of 
validity.8 

§  360. — THE  LIKE  RULES  AS  TO  STOCK  GAMBLING  DEALS. 
— The  like  rules  are  applied  in  cases  where  brokers  dealing 
in  gambling  transactions  in  stocks  seek  to  recover  money  paid 
in  settlement  of  losses.  No  recovery  is  permitted.4  Knowl- 
edge by  an  indorsee  of  a  bill  of  exchange  that  the  bill  was 
drawn  by  a  broker  and  accepted  by  the  customer,  for  differ- 
ences arising  in  several  stock-jobbing  transactions,  will 
defeat  any  recovery  as  against  the  acceptor.  Chargeable 
with  knowledge  of  the  facts,  an  indorsee  although  for  value 
can  acquire  no  greater  rights  than  the  broker  from  whom 
the  bill  was  received.6  Where  such  paper  given  as  margins 
upon  stock  gambling  options,  is  transferred  after  maturity, 
as  collateral  security  for  a  pre-existing  debt,  in  states  where 
the  restricted  rule  prevails,  the  pledgee  is  not  a  holder  for 

1  Bank  v.  Spaids,  8  Bradw.  493 ;  *  Everingham  v.  Meigham,  55  Wis. 
Dickson  v.  Thomas,  93  Pa.  St.  278 ;  354 ;  Melchoir  v.  McCarty,  31  Wis. 
iSorth  0.  Phillips,  89  Ib.  250;  Steers  252. 

v.  Lashley,  6  Term,  61 ;  Barnard  v.          *  Dickson  «.  Thomas,  93  Pa.  St. 
Backhaus,    52  Wis.  593;  Tenny  «.      278;  North  v.  Philips,  89  Ib.  250; 
Foote,  4    Bradw.  594;  s.  c.  95   111.      Brua's  App.  55  Ib.  299. 
109;  Farriera  «.  Gabell,   89  Pa.  St.          'Steers  «.  Lashley,  6  Term,  61. 
89. 

4  Tenny  ».  Foote,  4  Bradw.  594; 
s.  c.  95  111.  109. 
31 


482          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

value,  in  the  usual  course  of  business,  but  is  subject  to  an- 
tecedent equities.1 

§361. — NO  RECOVERY  UNDER    ILLEGAL    CONTRACTS  TO 

"  CORNER." — Agreements  to  "  corner  "  a  market  or  to  stifle 
couijjeutioa,  being  illegal  and  void,  as  against  public  policy, 
courts  of  equity  refuse  to  aid  parties  engaged  therein  to 
recover  money  advanced  in  connection  therewith  where 
they  have  been  executed  or  to  compel  a  division  of  the  pro- 
ceeds between  the  parties.  Persons  who  have  participated 
in  such  contracts  do  not  come  into  court  with  the  clean 
hands  necessary  when  seeking  equitable  relief.  The  rule 
was  enforced  where  all  the  grain  dealers  of  a  town  entered 
into  a  secret  general  partnership,  providing  that  each  sep- 
arate firm  should  conduct  their  own  warehouse  as  before  as 
if  there  were  no  partnership,  keep  their  own  books,  pay  their 
own  expenses,  ship  their  own  grain,  and  furnish  their  own 
funds  to  do  business  with,  and  at  the  end  of  each  month, 
each  individual  firm's  accounts  was  to  be  balanced,  and 
profits  or  losses  stated,  and  the  amount  remaining  di- 
vided according  the  number  of  shares  of  each  firm  in  the 
partnership.  A  bill  for  an  accounting  and  division  of  the 
profits  brought  by  one  of  the  parties,  was  dismissed.9  Equity 
will  not  aid  parties  to  enforce  aii  illegal  contract,  or  a  con- 
tract growing  out  of  an  illegal  act,  but  leaves  the  parties  in 
the  situation  where  they  have  placed  themselves.8  Upon 
an  agreement  to  "corner"  the  market  upon  a  certain  stock, 
a  third  person  advanced  funds  to  aid  the  purpose.  After- 
wards, he  sought  to  recover  the  money  back,  but  was  given 
no  relief  as  to  the  amount  actually  expended,  although  al- 
lowed to  recover  the  funds  still  in  the  hands  of  the  parties 
to  the  illegal  contract.4  And  it  is  no  defense  to  a  nego- 
tiable promissory  note,  in  the  hands  of  a  broker,  given  on 

1  Brua's  App.  55  Pa.  St.  299.  »  Buck  v.  Albee,  26  Vt.  184. 

*  Craft    t>.  McConoughy,    79  111.         4  Sampson  V.  Shaw,  101  Mass.  145; 
349.  Ball  v.  Gilbert,  12  Met.  397. 


THE  BROKER'S  SUIT.  483 

account  of  purchases  authorized  by  the  customer,  that  the 
latter  secretly  intended  to  create  a  "  corner"  in  the  article 
bought,  the  broker  not  being  informed  of  his  illegal  inten- 
tion.1 

§  362. — RELIEF  TO  THE  CUSTOMER,  WHEN  GIVEN. — The 
presumption  arises,  in  the  absence  of  direct  testimony,  where 
a  minor  of  limited  means  embarks  in  stock  speculations  to  a 
large  extent,  putting  up  margins,  that  he  does  not  intend  to 
receive  or  deliver  the  stocks  bought  or  sold  on  his  behalf. 
Failure  in  these  essentials  show  that  the  deals  entered  into 
were  wagering  contracts  merely,  contrary  to  the  policy  of 
the  law,  and  therefore  void  ab  initio.  The  minor  was  al- 
lowed, his  entire  margins  having  been  lost,  to  recover  the 
sums  advanced  by  him  to  the  brokers.*  A  payment  of 
margins  may  be  recovered  back  and  the  contract  repudiated 
in  a  case  where  the  customer  purchasing  alone  acted  in  good 
faith,  the  vendor  receiving  the  margins  without  obtaining 
the  goods  for  delivery.* 

1  Wright  v.  Crabbs,  78  Ind.  487.  3  Gregory  v.  Wendell,    39  Mich. 

8  Ruchizky  c.DeHaven,  97  Pa.  St.      337. 
202. 


484          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER  XXXVII. 

USAGES  ON  STOCK  AND  OTHER  EXCHANGES. 

§363.  The  usages  and  customs  of  brokers  on  stock  exchanges. 

364.  Custom  of  stock  broker  to  sell  upon  default  without  notice. 

365.  The  usage  as  to  notice  of  sale  in  New  York. 

366.  The  sale  of  stocks  by  brokers,  under  special  contract. 

367.  The  usage  as  to  notice  of  sale  on  Boards  of  Trade.  • 

368.  The  broker's  usages,  dealing  with  his  customer's  stock. 

369.  The  broker's  usages  not  to  retain  identical  certificates  or  grain 

ceipts. 

370.  The  broker's  usages  as  to  funds,  charges,  and  interest. 

371.  The  broker's  usage  as  to  "name"  day. 

372.  Usages  of  brokers  not  binding  upon  customers. 

§  363. — THE  USAGES  OF  BROKERS  ON  STOCK  EXCHANGES. 
— The  relations  and  contract  of  a  broker  and  his  customer,  as 
to  the  extent  the  latter  is  bound  by  the  customs  and  usages 
prevailing  upon  the  Exchange  where  the  proposed  deals  are 
to  be  made,  are  governed  by  the  general  principle  that  one 
who  employs  another  to  act  for  him  at  a  particular  market 
as  a  stock  or  grain  exchange,  is  regarded  as  intending  that 
his  business  shall  be  done  according  to  the  usages  and  cus- 
toms of  that  place,  whether  the  customer  is  in  fact  informed 
of  such  usages  and  customs  or  not.  Such  usages  and  cus- 
toms are  scrutinized  closely,  where  they  affect  the  interests 
of  third  parties.  They  are  required  to  be  valid,  and  rea- 
sonable, and  such  as  not  to  change  the  intrinsic  character  of 
the  contract  between  the  parties.1  Such  usages  and  customs, 

'Wheeler  ».  Newbould,  16  N.  Y.  s.  c.  L.R.  7  H.  L.  530;  Neilson  v. 

392  ;  Evans  «.  Wain.  71  Pa.  St.  69  ;  James,  L.  R.  9  Q.  B.  D.  546 ;  Robin- 

Marye  v.  Strouse,  5  Fed.  Rep.  486;  son  v.  Mollett,  L.  R.  7  H.  L.  802 ; 

Nichols  t>.  Merry,  L.  R.  7  Ch,  733;  Maxted  o.  Paine,  L.  R  6  Ex.  132; 


USAGES   ON  EXCHANGES.  485 

in  order  to  be  enforced  as  against  the  customer,  roust  be  so 
general  in  their  operation  as  that  he  must  be  supposed  to 
have  contracted  with  reference  thereto.1  Nor  will  evidence 
of  usage  be  permitted  to  vary  the  terms  of  a  special  contract 
between  the  parties,  or  to  introduce  new  conditions  therein, 
or  to  authorize  the  doing  of  acts  in  direct  contravention  of 
its  provisions,  although  evidence  may  serve  to  interpret  the 
language  of  the  contract,  or,  where  the  meaning  is  equivocal 
or  obscure,  to  ascertain  its  nature  and  extent.* 

§  364.  —  CUSTOM  OF  BROKERS  TO  SELL,  ON  DEFAULT, 
WITHOUT  NOTICE.  —  The  usage  of  stockbrokers,  upon  the  fall 
in  value  of  stocks  purchased  and  carried  by  them  for  a  cus- 
tomer, below  a  price  sufficient  fully  to  reimburse  the  broker, 
to  sell  the  same,  upon  default,  without  notice,  is  valid. 
The  broker  carrying  stocks  upon  margins,  having  advanced 
ninety  per  cent,  of  the  purchase  money,  and  holding  the 
certificates  and  margins  as  collateral  security,  is  entitled 
to  sell  such  stocks  at  the  Stock  Exchange,  without  notice 
to  the  customer.  The  customer  will  also  be  liable  in  an  ac- 
tion by  the  broker,  for  moneys  paid  and  services  rendered, 
at  his  request,  for  the  deficiency,  if  any,  arising  at  such  sale.8 
The  contract  of  the  stockbroker  and  customer  is  regarded 
in  Massachusetts,  not  as  creating  the  relations  of  a  pledgor 
and  pledgee,  but  as  a  conditional  agreement  to  deliver  so 
many  shares  of  stock  at  a  certain  time  and  the  payment  of 
so  much  money.  Where  stocks  are  bought  by  a  stock- 
broker chiefly  with  his  own  funds,  the  customer  simply 
putting  up  margins,  and  the  market  declines,  and  the  cus- 
tomer defaults  upon  demand  for  more  margin,  it  is  a  uniform 


Coles  v.  Bristowe,  L.  R.  4  Ch.  5;  s  Parsons  v.  Martin,  11  Gray,  111; 

Grissell  v.   Bristowe,  L.  11.  4  C.  P.  Allen  v.  Dykers,  3  Hill,  593;  s.  c.  7 

36;  Button  v.  Tatham,  10  Ad.  &  E.  Ib.  497. 

27  ;  Mitchell  v.  Newhall,  15  M.  &  •  Colket  v.  Ellis,   10  Phila.   375: 

W.  308.  Vanborne  v.  Gilbough,  10  W.  K  Cas. 

1  Han-is  v.  Turnbridge,  83  N.  Y.  347. 
92  j  Lyon  v.  Culbertson,  83  111.  324. 


486          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

and  well-established  rule  with  the  stockbrokers  to  sell  the 
stocks  so  carried  at  their  pleasure,  without  notice  to  the 
customer.1  The  rule  is  applied  in  favor  of  a  consignee  or 
commission  merchant,  who  advances  funds  upon  a  shipment 
of  grain  or  other  property,  to  a  large  percentage  of  its 
value.  Such  consignee  or  commission  merchant  may,  in 
the  absence  of  any  agreement,  sell  the  grain  or  other 
property,  at  such  time  as  he  sees  proper,  to  the  extent  and 
in  payment  of  his  advances.* 

§  365.  THE  USAGE  AS  TO  NOTICE  OF  SALE  IN  NEW 
YORK. — In  New  York,  a  broker,  purchasing  stocks  for  a 
customer,  upon  the  deposit  of  margins,  and  holding  the 
same  in  his  own  name,  as  collateral  security  for  his  ad- 
vances, is  a  pledgee.  Applying  to  the  parties  the  rules 
applicable  to  the  relations  of  pledger  and  pledgee,  a  usage 
of  the  Stock  Exchange  of  New  York  by  which  the  broker, 
upon  failure  of  the  customer  to  supply  further  margins,  upon 
demand,  might  sell  such  stocks  on  the  Exchange  without 
notice  of  the  time  and  place,  was  adjudged  illegal.  In  the 
leading  case  of  Markhaui  v.  Jaudon,8  the  Court  of  Appeals 
by  Hunt,  C.  J.,  established  the  rule  upon  this  sub- 
ject, which  has  been  followed  in  later  cases.  The  offer 
to  prove  the  existence  of  the  custom  as  stated  was  "  an 
offer  (said  the  court)  not  to  explain  the  meaning  of  particu- 
lar terms,  or  to  prove  attending  circumstances,  to  enable 
the  court  to  construe  the  agreement,  but  to  change  the 
rights  of  the  parties.  By  the  law  as  I  have  interpreted  it, 
the  customer  did  not  lose  the  title  to  his  stock  by  any  pro- 
cess less  than  a  sale  upon  reasonable  notice  or  by  judicial 

1  Covell    0.   Loud,   133    Mass.  41  Butterfiehl    v.    Stevens,    59    Iowa, 

(Deveus  J.).  596. 

»  Weed  v.  Adams,  37  Conn.  378;  »41   N.  Y.  235.      Cited  with  ap- 

Howard  v.    Davis,  40    Mich.  546 ;  proval  in  Stenton  u.  Jerome,  54  N. 

Brown   «.    McGraw,    14    Pet.  479;  Y.  480;  Baker  v.  Drake,  66  Ib.  518; 

Field  v.  Farrington,  10  Wall.  141;  Gruman  v.  Smith,  81  Ib.  25. 
May  field  v.  Douglas,  1  Sandf.  360; 


USAGES   ON   EXCHANGES.  487 

proceedings.  The  broker  had  no  right  to  sell  without 
notice.  A  practice  or  custom  to  do  otherwise  would  have 
no  more  force  than  a  custom  to  protest  notes  on  the  first 
day  of  grace,  or  a  custom  of  brokers  not  to  purchase  the 
shares  at  all  in  a  case  like  the  present,  but  to  content  them- 
selves with  a  memorandum  or  entry  in  their  books  of  the 
contract  made  with  their  customer.  Such  practice  in  each 
case  would  be  in  hostility  to  the  terms  of  the  contract,  an 
attempt  to  change  its  obligation,  and  would  be  void.  The 
proof  could  not  therefore  be  legally  given.  *  *  *  It  is 
said  that  the  stocks  which  are  the  subject  of  speculation 
are  fluctuating  and  uncertain  in  character ;  that  to  save 
the  broker  from  loss  prompt  action  is  necessary,  and  that 
there  is  no  time  for  notice  to  the  dealer.  It  is  said  in  the 
same  connection  that  as  the  broker  can  make  nothing  by  the 
rise  of  the  stock,  his  advantage  being  limited  to  his  regular 
interest  and  commissions,  it  is  reasonable  and  must  have 
been  the  understanding  that  he  should  have  the  power  to 
protect  himself  against  loss  by  an  immediate  sale  without 
notice.  I  cannot  assent  to  this  argument.  If  there  is  such 
a  necessity,  the  broker  must  secure  himself  by  a  special 
contract,  giving  him  the  right  to  sell  without  notice." 

§  366.  THE  SALE  OP  STOCKS  BY  THE  BROKER  UNDER 
SPECIAL  CONTRACT. — The  rule  announced  in  Markham  v. 
Jaudon,  as  to  the  pledge  relations  of  the  broker  and 
his  customer,  and  the  notice  required  before  a  valid  sale  of 
stock  purchased  by  the  broker  for  his  customer  could  be 
made,  is  subject,  as  suggested  in  the  leading  case,  to  the 
limitation  that  the  parties  to  such  a  transaction  may  provide 
by  contract  for  any  manner  of  disposing  of  the  pledged 
stocks  to  satisfy  the  broker's  claim,  provided  the  terms 
thereof  are  not  in  contravention  of  a  statute,  nor  against 
public  policy,  nor  fraudulent.1  A  contract  that  "all  trans- 

1  Baker  v.  Drake,  66  K  Y.  518  ;      ken  v.  Dehon,  27  Ib.  364;  Wheeler  v. 
Stenton  v.  Jerome,  54  Ib.  480  ;  Milli-      Newbould,  16  Ib.  392. 


488          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

actions"  should  be  "  in  every  way  subject  to  the  usages  of 
your  (the  broker's j  office,"  entitled  the  broker  to  show  by 
evidence  that  the  custom  of  his  office  was,  upon  failure 
of  a  customer  to  furnish  sufficient  margins,  upon  demand, 
to  sell  the  stock  at  the  Stock  Exchange,  without  notice  of 
the  time  and  place  of  sale.1  A  sale  of  stocks,  without 
notice,  was  sustained  in  a  case  where  an  order  had  been 
given  by  an  attorney  in  fact,  with  full  powers,  to  a  broker, 
"I  hereby  authorize  }rou  to  sell  in  your  discretion,  at  public 
or  private  sale  and  without  notice  to  me,  or  any  notice  what- 
ever, the  stocks,  bonds  or  gold,  which  you  are  or  hereafter 
may  be  carrying  fcr  me,  whenever  my  margin  shall  fall  be- 
low five  per  cent."  The  powers  given  under  such  con- 
tract may  be  exercised  by  brokers  when  in  good  faith 
and  in  the  exercise  of  a  sound  discretion,  they  deem  the 
state  of  the  market  to  justify  a  sale  of  the  stocks  they  are 
carrying.* 

§  307.  THE  USAGE  AS  TO  NOTICE  OF  SALE  UPON 
BOARDS  OF  TRADE. — The  custom  of  brokers  or  commission 
merchants  on  Boards  of  Trade  to  close  a  deal,  upon  the 
failure  of  a  customer  to  deposit,  after  reasonable  notice, 
further  margins,  the  market  being  unfavorable,  and  to  sell 
out  the  commodity  purchased,  without  notice  to  the  cus- 
tomer of  the  time  or  place  of  sale,  is  supported  as  a  valid 
usage.8  The  transaction  between  the  parties  differs  from 
that  of  the  stockbroker  and  his  customer,  and  is  hardly 
to  be  regarded  as  a  pledge  of  property.  The  broker  upon  a 
Board  of  Trade  does  not,  in  the  ordinary  trading  on 
"seller's  options,"  receive  any  property  or  indicia  of  prop- 
erty for  his  customer,  but  holds  merely  an  executory  con- 
tract for  the  delivery  thereof  upon  a  certain  future  option 

1  Baker  v.  Drake,  66  N.  Y.  518.  ».  McLason,  60  Ib.  817.  A  like  usage 

*  Wicks  v.  Hatch,  62  N.  Y.  535.  in  the  New  York  Cotton  Market  was 

•Denton  r.  Jackson.  106  111.  433;  supported  in  Milliken  v.  Dehon,  27 

Corbett  v.  Underwood,  83  Ib.  324;  N.  Y.  864. 

Lyon  v.  Culbertson,  Ib.  33  ;    Mocller 


USAGES   OX  EXCHANGES.  489 

or  contingency.  The  deposit  of  margins,  however,  to  meet 
the  changes  of  the  market  upon  the  particular  option  traded 
in  is  required.  The  broker  may  also  demand  delivery,  at 
the  expiration  of  the  option,  if  no  settlement  of  the  deal 
has  been  made  prior  thereto,  and  may,  where  he  has  sold 
property,  be  required  to  deliver  under  his  contract.  To 
protect  himself  against  this  liability,  he  is  entitled  to  close 
a  deal,  without  notice,  where  there  is  a  default  in  furnish- 
ing margins  upon  reasonable  demand.  The  rules  relative  to 
parties  to  a  contract  of  pledge,  requiring  notice  of  sale,  are 
not  applicable  to  such  transactions.1  Snch  usage  must  be  so 
uniformly  acquiesced  in,  and  for  such  a  length  of  time,  as 
to  force  the  inference  that  it  was  known  to  the  contract- 
ing parties,  and  formed  a  part  of  the  contract.9 

§  368.  THE  BROKER'S  USAGES,  DEALING  WITH  HIS 
CUSTOMER'S  STOCK. — A  custom  among  stockbrokers  in  Bos- 
ton, in  filling  orders  for  stock,  deliverable  on  or  before  a 
certain  day,  at  buyer's  option,  with  interest  charges,  to  buy 
such  stock  for  cash,  or  on  a  shorter  option,  in  their  own 
names,  and  to  "turn  "  the  same,  or  carry  it  until  the  ma- 
turity of  the  original  contract,  charging  an  additional  sum 
for  brokerage,  as  compensation  for  such  carrying,  was 
held  bad,  a  customer  not  being  chargeable  with  knowledge 
of  it,  and  probably  bad,  any  way.3  Evidence  of  custom  was 
not  permitted  that  where  a  customer  bought  a  "  straddle," 
or  the  double  privilege  of  a  "put"  and  "call,"  the  usage 
of  the  broker  selling  the  same  was  to  operate  in  the  stock, 
holding  the  "  straddle "  as  a  security.  It  could  not  be 
shown  as  against  a  customer  who  had  no  knowledge  of  sucli 
custom.4  Nor  is  evidence  permitted  to  prove  a  custom  of 
brokers  to  place  stock  sent  them  for  sale  in  their  own  names 
on  the  books  of  the  company,  and  in  making  transfers  to  do 

1  Corbett    «.  Underwood,  83    111.          8  Day  v.  Holmes,  103  Mass.  306. 
324.  *  Harris  v.  Tunbridge,  83  N.  Y.  92. 

s  Lyon  v.  Culbertson.  83  111.  33. 


490         QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

so  indiscriminately  without  regard  to  the  person  from  whom 
the  stock  was  received,  or  for  whose  account  the  stock  was 
sold.1 

An  offer  was  made  to  prove  a  custom  on  the  London 
stock  exchange  by  which  stockbrokers  loaning  money  on 
securities,  such  as  certificates  of  stock,  with  full  power  to 
transfer,  had  a  right  to  sell  such  securities  whenever  they 
might  think  proper ;  and  that  where  stock  was  deposited, 
and  there  was  no  means  of  identifying  it,  the  practice  at  the 
stock  exchange  was  to  consider  it  sufficient  to  re-transfer 
the  same  amount  of  like  stock.  A  rule  of  the  Exchange  was 
introduced  that  "in  all  cases  of  loans  on  the  deposit  of 
security,  the  lender  is  bound  to  return  the  identical  secur- 
ities deposited,  unless  it  be  otherwise  stipulated  at  the  time 
of  the  loan."  As  the  alleged  custom  was  in  direct  opposi- 
tion to  this  express  rule,  it  was  not  supported ;  although 
a  broker,  while  not  permitted  to  sell  such  securities,  may 
transfer  the  mortgage  or  pledge  by  a  further  mortgage  or  sub- 
mortgage.  "  The  lender  might  suddenly  want  his  money 
(says  Malins,  V.  C.),  and  it  would  indeed  be  a  very  hard 
rule,  if  he  wanted  the  money  he  had  lent  for  a  certain  pur- 
pose, if  he  could  not  transfer  the  security  to  another.  That 
is  a  right  that  is  not  disputed  by  the  original  borrower  in 
this  case,  and  is  a  right  that  I  should  consider  the  lender  of 
money  upon  any  security  would  have."  Nor  is  there  any 
difficulty  in  identifying  stock,  as  it  is  the  constant  prac- 
tice of  an  English  court  of  chancery  to  trace  it  when  im- 
properly dealt  with.* 

§869.  THE  BROKER'S  USAGE,  NOT  TO  RETAIN  IDEN- 
TICAL CERTIFICATES  OR  GRAIN  RECEIPTS. — The  usage  of 
stockbrokers  (where  not  controlled  by  statutory  enactment 
or  express  contract)  to  sell  or  pledge  stocks  purchased  for 
their  customers,  upon  margins,  is  supported  as  valid.  The 

1  Parsons    «.   Martin,    11    Gray,          *  Langton  v.  Waite,  L.  R.  6  Eq. 
111.  165 ;  ex  parte  Dennison,  3  Yes.  552. 


USAGES   ON  EXCHANGES.  491 

nmrgin  deposited  by  the  customer  is  generally  ten  per  cent, 
although  other  securities  may  be  pledged  ;  but  the  purchase 
is  made  by  the  broker  chiefly  with  his  own  funds  and  in  the 
course  of  his  business.  The  broker  is  not  generally  required 
under  these  circumstances  to  retain  the  identical  shares,  so 
purchased  by  him  for  any  particular  customer,  in  his  pos- 
session, since  shares  of  stock  bear  no  "  earmarks,"  but  he 
may  use  the  same  in  order  to  raise  other  moneys  wherewith 
to  continue  his  business,  provided  he  has  always  had  in  his 
possession  the  like  number  of  shares,  and  has  been  ready  to 
fulfil  the  terms  of  his  contract  with  the  customer  by  deliver- 
ing an  equal  number  of  like  shares  as  were  purchased  for 
him  and  charged  to  his  account.  The  business  of  stock- 
brokers would  soon  come  to  an  end  if  the  rule  were  other- 
wise, as  it  would  be  impossible  for  them  to  furnish  funds 
from  their  private  accounts  sufficient  to  cany  on  the  innu- 
merable transactions  made  every  day  on  Stock  Exchanges.1 
A  commission  merchant  operating  on  the  Board  of  Trade 
at  Chicago,  made  advances  to  a  customer  upon  shipments  of 
grain  consigned  to  him,  but  which  the  customer  directed 
not  to  be  sold,  but  to  be  held  for  further  orders.  The  grain 
was  placed  in  a  public  warehouse,  and  receipts  issued  there- 
for in  the  name  of  the  commission  merchant,  but  not  show- 

1  Nourse  t>.  Prime,  4  Johns.  Ch.  40  Md.  102  ;  Worthington  v.  Torney, 

490  (Chan.  Kent);    s.  c.  7  Ib.  69;  34  Ib.  182 ;  Berlin  v.  Eddy,  33  Mo. 

Allen  v.  Dykers.  3  Hill,  593  ;  s.  c.  7  426  ;  Boylan  v.  Huguet,  8  Nev.  345; 

Hill,  497  ;  Hardy  v.  Jaudon,  1  Rob.  Gilpiu  v.  Howell,  5  Pa.  St.  41 ;  Wyn- 

261 ;  Frost  v.  Clark  son,  7  Cow.  24 ;  koop  v.  Leal,  64  Ib.  361 ;  Neiler  v. 

Rogers  v.  Gould,  6  Hun,  449  ;  Cham-  Kelly,    69  Pa.   St.  409 ;    Noyes  v. 

berlain  v.  Greenleaf,  4  Abb.  N.  Cas.  Spaulding,   27  Vt.  420 ;    Hubbell  v. 

178;  Horton  v.  Morgan,  19   N.  Y.  Drexel,   11   Fed.   Rep.   115.     But  a 

170;  Stewart  v.  Drake,  46  Ib.  449;  pledge  of  fifty  shares  of  "  Consoli- 

Lawreuce  v.   Maxwell,   53  Ib.    19 ;  dated "  Erie  stock  cannot  be  made 

Taussig  v.  Hart,  58  Ib.  425;  Marsten  good  to  the  pledger  by  transferring 

v.  Marsten,  69  Ib.  220,  226;  Ogden  to  him  fifty  shares  of  "Converted" 

v.  Lathrop,  65  N.  Y.  158;   Levy  v.  Erie  stock.     Wilson  v.  Little,  2  N. 

Loch,  85  N.    Y.    370  ;    Thompson  Y.  443.    Lecroy  v.  Eastman,  10  Mod. 

v.  Tolland,   48   Cal.  110;   Wood  v.  499;  Shales  v.  Seiguoret,  1  Ld.  Raym. 

Hayes,  15  Gray.  375 ;  Price  t.  Grover,  440  ;  Mocatta  v.  Bell,  27  L.  J.  Ch.  237. 


492          QUASI-NEGOTIABLE   COLLATERAL 

ing  the  name  of  the  consignor.  The  commission  merchant 
immediately  sold  these  warehouse  receipts,  retaining  how- 
ever enough  warehouse  receipts  in  his  possession  to  represent 
the  aggregate  amount  of  grain  received  from  his  customers. 
It  was  established  by  evidence  that,  in  the  transaction  of 
business  on  Boards  of  Trade  by  its  members  there  was 
a  custom  and  usage,  in  holding  grain  consigned  to  them,  or 
in  making  sales  of  it  on  account  of  any  particular  shipper, 
to  pay  no  attention  to  the  matter  of  holding  or  transferring 
the  identical  receipts  which  were  received  when  that  cus- 
tomer's grain  was  warehoused,  but  that  such  receipts 
were  used  indiscriminately.  The  usage  was  sustained  as 
valid,  although  sufficient  grain  receipts  had  not  been 
retained  to  meet  the  claims  of  all  customers.  In  such  a  case 
the  question  is  one  of  storage  and  insurance,  rather  than  ar 
action  for  conversion.  The  property  of  the  customer  entirelv 
ceases  in  the  special  shipment  of  grain,  by  its  delivery  into 
a  public  elevator,  the  receipts  being  simply  evidence  of  a 
debt  to  the  commission  merchant  holding  the  receipts,  who 
becomes  a  debtor  to  the  owner,  instead  of  remaining  a  bailee 
of  his  property.1 

§  370.  THE  BROKER'S  USAGES,  AS  TO  FUNDS,  CHARGES 
AND  INTEREST.  —  An  effort  was  made  to  prove  a  custom 
among  brokers,  when  dealing  with  brokers  in  other  cities, 
to  put  all  transactions  into  one  account,  and  remit  and  draw 
for  the  general  balance.  "  If  there  is  a  custom  (said  the 
court)  among  stockbrokers,  when  dealing  with  others,  to 
appropriate  money  belonging  to  the  principal  to  the  pay- 
ment of  the  broker's  indebtedness,  the  sooner  it  is  abolished 
the  better — mains  usus  est  abolendus.  A  custom  so  iniqui- 
tous can  never  obtain  the  force  or  sanction  of  law,  and  the 
marvel  is,  that  it  should  be  set  up  as  a  defense  to  this 
action."8  The  like  rule  was  applied  where  grain  brokers 

1  Bailey  v.  Bcnsley,  87  111.  556.  certain  railroad  stocks.     The  broker 

*  Evans  t>.  Wain,  71   Pa.  St.  69.      placed  them  in  the  hands  of  one 

Wain    employed  a   broker  to  sell      Wister,  a  broker,  who  sent  them  to 


USAGES   ON  EXOHANGES.  493 

entered  into  an  arrangement  witn  an  agent  at  Baltimore  to 
put  all  transactions  between  them  "into  one  general  ac- 
count, and  remit  or  draw  for  the  general  balance."  The  rights 
of  a  customer,  ignorant  of  the  arrangement,  were  supported 
as  against  the  brokers,  notwithstanding  the  account  of  the 
brokers  and  their  agent  had  been  closed  at  a  loss  to  the 
former.1  Evidence  was  received  of  the  custom  of  the 
Board  of  Brokers  in  the  issue  of  contracts  for  the  sale  of 
mining  stock,  containing  a  receipt  for  the  payment  of  the 
first  instalment,  to  issue  the  same  without  the  money  hav- 
ing been  actually  paid.2  Upon  the  insolvency  of  a  stock- 
broker, and  the  settlement  of  his  trades,  the  usage  is  sup- 
ported of  appropriating  the  proceeds  of  his  deals  by  the 
official  assignee  of  the  Stock  Exchange  first  in  payment  of 
differences  due  by  the  defaulting  broker  to  members,  al- 
though the  settlement  is  not  exclusive,  as  both  brokers  and 
creditors  can  pursue  other  remedies  and  suits  to  obtain  sat- 
isfaction.3 

A  custom  of  stockbrokers  to  debit  and  credit  interest 
monthly,  computing  interest  on  balances,  is  supported. 
Such  a  mode  of  computing  interest,  although  in  one  contin- 
gency, it  involves  compound  interest,  does  not  necessarily 
involve  usury,  as  the  balance  may  be  paid  at  any  time  ;  nor 
does  it  affect  a  contract  for  the  purchase  and  sale  of  stocks, 
being  wholly  independent  of  it.4  But  a  custom  of  charging 


the    defendants,    brokers   in    New         *  "Winans  v.  Hassey,  48  Cal.  634. 
York.    The  latter   sold   the  stock,          8  Ex  parte  Grant,  L.  R.  13  Ch.  D. 

but  Wister  having  failed,  indebted  667.     By  rules  167, 169  &  170  of  the 

to  them,  they  insisted  upon  deduct-  London  Stock  Exchange  (1881)  cred- 

ing  from  the  proceeds  of  the  stock  itors  outside  the  board  are  allowed 

the  balance  due  them  from  him  on  to  join,  if  they  wish,  in  the  distribu- 

general  account.    The  like  principle  tion  of  the  funds  held  by  the  official 

was  applied  in  Talmadge  v.  Third  assignee    of    the  board.    Ex  parte 

Nat.  Bank,  .91  N.  Y.  531 ;  Semenza  v.  Ward,  L.  R.  20  Ch.  D.  356. 
Brinsley,  18  C.  B.  N.  S.  467  ;  Cheap          «  Hatch    v.   Douglass,    41    Conn. 

v.  Cranwood,  4  B.  &  A.  663.  116. 

1  Scarlett  «.  Van  Inwagen,  9  Biss. 
157. 


494          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

customers  an  arbitrary  rate  for  telegrams,  as  if  a  special  dis- 
patch were  sent,  when  in  fact  several  of  such  messages  are 
sent  in  one  dispatch,  at  much  less  expense,  is  not  favored, 
in  the  absence  of  knowledge  by  the  customer.1 

Evidence  was  refused  when  offered  to  establish  a  custom 
to  change  the  rule  that  on  a  sale  of  stock  deliverable  at  a 
future  day  at  the  option  of  the  seller,  dividends  declared 
before  the  day  of  sale,  but  not  payable  until  after  the  day 
for  delivery,  belong  to  the  seller,  on  the  ground  that  the 
contract  was  to  sell  so  many  shares  of  stock,  and  the  custom 
would  have  passed  something  more.4  And  in  another  case, 
evidence  as  to  the  meaning  attributed  to  the  words  "divi- 
dends on"  and  "ex-dividend"  by  the  custom  of  stock- 
brokers, was  not  permitted,  as  it  would  have  had  the  effect 
of  changing  the  contract  between  the  parties.* 

§371. — THE  BROKER'S  USAGE  AS  TO  "NAME-DAY." — 
The  usage  prevailing  on  the  London  Stock  Exchange,  that 
in  transactions  between  its  members,  there  is  an  implied  un- 
derstanding that,  on  the  purchase  of  stock,  the  buying  job- 
ber shall  be  at  liberty  by  a  given  day,  called  the  "  name- 
day,"  to  substitute  another  person  as  buyer,  and  so  relieve 
himself  from  further  liability  on  the  contract,  provided  such 
substituted  person  be  one  to  whom  the  original  seller  can- 
not reasonably  except,  and  that  such  person  accept  a  trans- 
fer of  the  stock,  and  pay  to  the  original  seller  the  price,  is 
upheld  as  reasonable.4  The  name  given,  however,  must  be 
that  of  a  person  able  and  willing  to  purchase,  and  not  that 
of  a  non-existent  person,  lunatic,  infant,  married  woman,  or 
one  not  consenting  thereto.1  The  giving  of  the  name  of  a 

1  Marye  t>.  Strouse,  5Fed. Rcp.486.  533;  s.  c.  7  H.  L.  530;  disapp.Rcunie 

»  Spear  «.  Hart,  3  Robt.  420.  t>.  Morris,  L.R.13  Eq.  203,  where  such 

1  Lombardo  v,  Case,  45  Barb.  95.  a  transaction,  in  the  absence  of  fraud, 

4  Grissell  v.  Bristowe,  L  R.  4  C.  P.  had    been    supported.      Maxted    v. 

86,  reversing  s.  c.  L.  R.  3  C.  P.  112  ;  Paine,  L.  R.  4  Ex.  81  ;  Heritage  ». 

Allen  v.  Graves,  L.  R.  5  Q.  B.  478.  Paine,  L.  R.  2  Ch.  D.  594. 
•  Nickalls  v.  Merry,   L.  R.  7  Ch. 


USAGES   ON   EXCHANGES.  495 

person  legally  competent  to  hold  the  stock  but  of  no  means, 
and  who  consented  to  allow  the  use  of  his  name  for  a  small 
consideration,  was  regarded  as  a  sufficient  compliance  with 
the  usage.1  Where  the  vendor,  by  reason  of  accidental 
omission,  intervening  insolvency  of  the  company,  or  the 
giving  the  name  of  a  mere  nominee  of  the  purchaser,  remains 
still  subject  to  liability  as  a  stockholder,  he  has  his  action 
against  the  purchaser,9  or  against  the  broker,  where  the 
latter  has  agreed  on  the  sale-note  "  registration  guaranteed."3 

§  372. — USAGES  OF  BROKERS,  NOT  BINDING  UPON  CUSTO- 
MERS.— A  custom  of  stockbrokers,  upon  receipts  of  orders 
from  customers  to  purchase  stocks,  to  buy  such  stocks  of 
themselves,  is  not  supported,  as  it  changes  the  character  of 
the  broker  and  the  nature  of  the  transaction.4  And  a  usage 
of  brokers  to  recognize  only  the  party  employing  them,  and  to 
obey  his  directions  in  the  disposal  of  the  proceeds  of  a  sale, 
is  not  upheld,  where  the  brokers  are  chargeable  with  notice 
that  the  shares  dealt  in  are  not  the  property  of  the  solicitor 
ordering  their  sale,  but  belong  to  an  estate.6  A  customer 
is  not  liable  for  any  loss  resulting  to  his  broker  by  reason  of 
the  latter's  insolvency,  notwithstanding  any  usage  on  the 
stock  exchange  to  insist  upon  such  liability;'  nor  where,  by 
custom  of  brokers,  the  dealings  of  the  broker  were  con- 
ducted in  an  invalid  manner;7  nor  is  he  required  to  submit  to 
an  arbitration  of  any  claim,  held  under  the  rules  of  an  Ex- 
change.* A  customer  of  a  broker  or  a  commission  merchant, 

1  Maxted  v.  Paine,  L.  R.  4  Ex.  81.          4  Pickering  v.  Demeritt,  100  Mass. 

*  Castellan  v.  Hobson,  L.  R.  10  Eq.      416 ;  Robinson  v.  Mollett,  L.  R.  7  H, 
47 ;  Shepherd  v.  Gillespie,  5  Ib.  293;      L.  802. 

s.  c.  3  Ch.  764 ;  Evans  v.  Wood,  L.R.  8  Pearson  v.  Scott,  L.  R.  9  Ch.  D. 

5  Eq.  9  ;  Brown  v.  Black,  L.  R.  15  198. 

Eq.  363 ;  s.  c.  8  Ch.  939  ;  Bowring  v.  «  Duncan  v.  Hill,  L.  R.  6  Ex.  255 ; 

Shepherd,  L.  R.  6  Q.  B.  309  ;  Hodg-  s.  c.  8  Ex,  242. 

kinson  v.  Kelly,  L.  R.  6  Eq.  496.    A  '  Neilson  v.  James,  L.  R.  9  Q.  B. 

contrary  view  was  taken  in  Toning-  D.  546. 

ton  «.  Lowe,  L.  R.  4  C.  P.  26.  •  Williamson  V.  Eliis,  12  Phila.  338. 

•  Cruise  v.  Paine,  L.  R.  6  Eq.  641; 
s.  c.  4  Ch.  441. 


496          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

sold  out  for  want  of  margins,  has  a  right  to  know  from  the 
evidence  whether  the  mode  of  dealing  adopted  by  the  com- 
mission merchant  was  fair,  and  free  from  all  fraud,  injustice 
or  wrong  to  him.  Commission  merchants  and  brokers  have 
no  right  to  adopt  methods  in  making  purchases  for  their 
customers  that  they  can  refuse  to  explain,  or  that  are  so  in- 
tricate or  tortuous  that  they  are  incapable  of  being  explained 
to  the  full  comprehension  of  ordinarily  intelligent  men.1 

In  a  leading  Massachusetts  case,  Shaw  v.  Spencer,9  an 
offer  was  made  to  show,  1,  that  it  was  a  matter  of  common 
occurrence  for  certificates  of  stock  to  be  issued  in  the  name 
of  some  other  person  as  trustee,  when  in  fact  there  was  not 
any  trust ;  2,  whether  certificates  of  stock,  issued  to  a  desig- 
nated person  as  trustee,  were  constantly  bought  and  sold  in 
the  stock  market,  by  a  simple  indorsement  of  the  certificate 
by  the  person  named  as  the  holder,  without  inquiry  as  to 
the  authority  by  which,  or  the  use  or  purpose  for  which  the 
transfer  was  made.  As  to  the  first,  "  the  law  holds  (say  the 
court)  that  the  insertion  of  the  word  *  trustee '  after  the 
name  of  a  stockholder  does  indicate  and  give  notice  of  a 
trust.  No  one  is  at  liberty  to  disregard  such  notice,  and  to 
abstain  from  inquiry  for  the  reason  that  a  trust  is  frequently 
simulated  or  pretended  when  it  really  does  not  exist.  The 
whole  force  of  this  offer  of  evidence  is  addressed  to  the  ques- 
tion whether  the  word  '  trustee '  alone  has  any  significance, 
and  does  amount  to  notice  of  a  trust,  and  it  has  been  decided 
that  it  does."8  As  to  the  second  offer,  the  court  added,  "a 
usage  to  disregard  one's  legal  duty,  to  be  ignorant  of  a  rule 
of  law,  and  to  act  as  if  it  did  not  exist,  can  have  no  stand- 
ing in  the  courts." 

1  Oldershaw  v.  Knowles,  101  111.          *  Sturtevant  v.  Jaques,  14  Allen, 
117.  623. 

•  100  Mass.  383. 


Div.  2.— BILLS  OF  LADING, 


CHAPTER  XXXVIII. 


THE  BILL  OF  LADING. 

/ 

§373.  The  bill  of  lading  as  collateral  security. 

374.  The  bill  of  lading. 

375.  The  bill  of  lading  quasi-negotiable. 

376.  The  foreign  view  of  bills  of  lading. 

377.  Glyn,  Mills,  Currie  &  Co.  v.  East  &  West  India  Docks  Company. 

378.  Bills  of  lading  made  negotiable  by  statute. 

379.  The  bill  of  lading  a  symbol  of  property. 

§  373. — THE  BILL  OP  LADING  AS  COLLATERAL  SECURITY. 
— Bills  of  lading  were  among  the  earliest  documents  of  title 
used  in  the  commercial  world  for  the  purposes  of  collateral 
security.  The  amounts  advanced  by  those  who  lend  money 
on  the  security  of  bills  of  lading  are  enormous.1  The  dis- 
count by  banks  of  bills  of  exchange,  drawn  upon  consignees, 
for  the  purchase  money  of  goods,  the  bill  of  lading  being 
delivered  as  collateral  security  for  its  payment,  or  loans 
upon  the  deposit  of  bills  of  lading  by  the  consignee,  where 
they  have  been  forwarded,  in  order  to  raise  funds  to  pay 
the  bills  of  exchange  drawn  for  the  purchase  price,  are 
common  forms  of  loaning  money.  A  bill  of  lading  in  Eu- 
rope is  a  negotiable  instrument,  but  in  .this  country  its  char- 
acter, even  under  statutes  providing  that  transfer  shall  be 
made  "  in  the  same  manner  as  bills  of  exchange  and  prom- 

1  Glyn  v.  E.  &W.  India  Docks,  L.  R.  7  App.  613  (Lord  Blackburn). 

82  (497) 


498          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

issory  notes,"  is  quasi-negotiable  only.  In  the  absence  of 
other  words,  snch  provisions  relate  to  the  manner  of  trans- 
fer, and  do  not  give  to  a  bill1  of  lading  the  privileges  be- 
longing to  the  favored  instruments  of  commerce.  The  title 
of  the  pledgee  for  value  of  bills  of  lading  is  preferred  as 
against  the  lien  of  the  unpaid  vendor,  although  the  bills  of 
exchange  drawn  for  the  price  of  the  goods  are  certain  to  be 
dishonored,  provided  the  lender  is  without  knowledge  or 
notice  of  any  fact  upon  which  the  vendor's  right  of  stoppage 
in  transitu  may  arise.  The  pledgee's  title  is  founded  upon 
a  right,  either  general  or  special,  to  the  property  represented 
by  the  bill  of  lading,  and  to  its  possession  ;  and  is  protected 
as  between  the  parties  to  the  contract  of  pledge,  and  as! 
against  third  parties,  carriers,  pledgees,  or  purchasers,  deal-' 
ing  with  the  goods  tortiously  or  without  authority,  or  with 
notice,  actual  or  presumptive,  of  the  indorsement  for  value 
as  collateral  security  of  the  bill  of  lading.  The  only  limi- 
tation upon  his  claim  is,  that  where  bills  of  lading  are  issued 
in  sets  of  three,  a  bona  fide  delivery  by  the  ship-owner  to 
the  person  first  presenting  one  of  such  bills  of  lading,  is  a 
valid  discharge  of  his  contract,  although  other  bills  of  the 
set  are  in  the  hands  of  a  pledgee  for  value  advanced  prior 
to  the  time  of  delivery,  the  ship-owner  being  without  knowl- 
edge or  notice  of  such  transfer.  As  between  successive 
pledgees,  the  holder  of  the  bill  first  indorsed  is  preferred.1 

1  Pollard  «.  Vinton,  105  U.  8.  5;  Bank  v.  Logan,  74  N.  Y.  568;  Marine 

Shaw  v.  Railroad  Company,  101  Ib.  Bank  v.  Fiske,  71  Ib.  353 ;  Farmers' 

504;  Gibson®.  Stevens,  8  How.  384;  Bank  v.  Haseltine,  78  Ib.  104;  Beck- 

The  Thames,  14  Wall.  98 ;  Robinson  er  v.  Hallgartcn,  86  Ib.  167  ;  Emery's 

C.Memphis  Ry.  Co.  9  Fed.  Rep.  133;  Sons  v.  Irving  Nat.  Bunk,  25  Ohio 

Loeb  v.  Peters,  63  Ala.  243;  Stone  v.  St.  360;  Holmes  v.  German  Security 

West  St.  L.  Transf.  Co.  9  Bradw.  Bank,  87    Fa.   St.  525 ;    Holmes «. 

48;  Cairo  National  Bank  v.  Crocker,  Bailey,  92  Pa.  St.  57;  Meyerstein  «. 

Ill    Mass.    163;     Stollenwerck    «.  Barber,  L.  R.  2  C.  P.  57,  675;  s.  c. 

Thacher,  115  Mass.  224;  Forbes  «.  4  H.  L.  325;  exparteGolding,  L.R. 

Boston  &  L.  Ry.   Co.,   138    Mass.  13  Ch.  D.  624 ;  Glyn  v.  E.  &  W.  Ind. 

154;  s.  c.  9  Am.  &  E.  R.  R.  Cas.  76;  Docks  Co.  L.  R.  7  App.  591 ;  Gurney 

Lee  v.  Kimball.  45  Me.  172;  Tiede-  v.  Behrend,  8  El.  &  Bl.  633;  in  re 

man  v.  Knox,  53  Md.  612  ;  Farmers'  Westzinthus,  5  B.  &  Ad.  817;  San- 


THE  BILL  OP  LADING.  499 

§  374. — THE  BILL  OF  LADING. — A  bill  of  lading  is  a  mem- 
orandum or  acknowledgment  in  writing  signed  by  the  cap- 
tain or  master  of  a  ship  or  other  vessel  that  he  has  received 
in  good  order  on  board  of  his  ship  or  vessel  therein  named 
at  the  place  therein  mentioned,  certain  goods  therein  speci- 
fied, which  he  promises  to  deliver  in  like  good  order  (the 
dangers  of  the  sea  excepted)  at  the  place  therein  appointed 
for  the  delivery  of  the  same  to  the  consignee  therein  named, 
or  to  his  assigns,  he  or  they  paying  freight  for  the  same.1 
A  bill  of  lading  issued  by  a  railroad  company  or  other  inland 
common  carrier,  is  a  receipt  for  the  property  described 
therein,  and  a  contract  to  carry  the  same  to  a  place  therein 
named,  and  to  deliver  to  a  person  named,  or  order,  or 
bearer.4  As  between  common  carriers  on  land  and  common 
carriers  on  water,  the  law  draws  no  distinction.  They  are 
each  subject,  in  issuing  bills  of  lading,  to  the  same  obliga- 
tions and  liabilities,  and  to  the  same  duties,  and  entitled  to 
the  same  protection.8 

§  375. — THE  BILL  OF  LADING  QUASI-NEGOTIABLE. — A 
bill  of  lading  is  primarily  a  contract  between  a  ship-owner 
and  shipper  or  inland  carrier  and  shipper  for  the  carriage 
and  delivery  of  property.  As  between  the  parties  to  the 
contract,  the  bill  of  lading  has  no  elements  of  negotiability. 
It  is  only  after  a  general  indorsement  or  transfer  of  the  bill 
of  lading  by  the  owner,  and  when  it  has  passed  into  the 
hands  of  a  bona  fide  pledgee  or  other  holder  for  value,  that 
quasi- negotiability  arises.  The  transfer  of  such  bill  of  lading 
is  as  effective  in  vesting  title  to  the  goods  represented  as  if 
they  were  actually  in  possession  of  the  person  loaning 

ders  0.  Maclean,  L.  R.  11  Q.  B.  D.  Ib.  230;  Seymour  v.  Norton,  105  111. 

327.  272;  Michigan  Cent.  R.  R.  Co.  v. 

1  Abbott's  Shipp.  216  ;  Hibbert  v.  Phillips,  60  111.  190  ;  Taylor  v.  Tur- 
Carter,  1  Term,  745  ;  Bouvier's  Law  ner,  87  Ib.  296. 

Diet.  Vol.  1,  246  ;  Code  de  Comm.  *  King  v.  Shepherd,   3  Story,   349 

art.  281.  (Story,  J.)     "A  ship  is  a  common 

2  National  Bank  v.  Dearborn,  115  carrier  like  any  other."    Elliott  v. 
Mass.  219 ;  Newcomb  v.  Railroad  Co.  Russell,  10  Johns.  1. 


500          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

money,  although  such  indorsement  and  delivery  of  a  bill  of 
lading  carries  with  it  no  such  fixed  legal  results  as  in  the 
case  of  negotiable  instruments.1  So  long  as  the  bill  remains 
in  the  hands  of  an  agent  entrusted  with  it  for  a  special  pur- 
pose, as  shown  upon  its  face  or  by  indorsement,  or  not  auth- 
orized to  pledge,  a  holder  for  value  can  acquire  no  title  as 
against  the  owner,  through  any  act  of  misappropriation  or 
fraud  of  the  agent,  or  by  an  act  not  authorized.8  The 
maker  of  a  bill  of  lading  is  riot  in  the  same  position  as  the 
maker  of  commercial  paper,  bound  to  protect  it  although 
misappropriated,  when  in  the  hands  of  an  innocent  holder 
for  value.3  Where,  however,  there  has  been  a  general  in- 
dorsement or  assignment  of  the  bill  of  lading  by  the  original 
holder,  any  subsequent  bona  fide  pledgee,  advancing  value 
thereon,  without  notice,  is  protected,  although  as  between 
the  original  parties,  a  secret  agreement  existed  as  to  the  use 
to  be  made  thereof  of  which  the  act  of  pledge  was  a  breach. 
A  pledgee  for  value  advanced  in  good  faith,  without  no- 
tice, obtains,  under  such  indorsement  and  delivery,  a  good 
tide  as  against  the  owner.4 

1  Stone  v.  West  St.  Louis  Transf.  poses  in  the  hands  of  the  holder,  it 

Co.  9  Bradw.  48 ;  Glyn  v.  E.  &  W.  is  not  a  negotiable   instrument  or 

Ind.  Docks  Co.  L.  R.  7  App.  591 ;  obligation  in  the  sense  that  a  bill  of 

Security  Bank  v.  Luttgren,  29  Minn.  exchange  or  a  promissory  note  is.  Its 

363;  Stollenwerck  v.  Thacher,  115  transfer    does  not  preclude,    as  in 

Mass.  224.     In  Pollard   ».  Vinton,  those    cases,    all  inquiry    into  the 

105  U.  S.  8,  the  United  States  Su-  transaction  in  which  it  originated, 

preme  Court  (Miller,  Jus.)  describe  because  it  has  come  into  hands  of 

a  bill  of  lading  as  being  "an  instru-  persons  who  have  innocently  paid 

ment  well    known    in    commercial  value  for  it.     The  doctrine  of  bona 

transactions,  and  its  character  and  fide  purchasers  only  applies  to  it  in 

effect  have  been  defined  by  judicial  a  limited  sense." 

decisions.     In    the    hands    of    the  9  Voss  v.  Robertson,  46  Ala.  483; 

holder  it  is  evidence  of  ownership,  Stollenwerck    v.    Thacher,    supra, 

special  or  general,  of  the  property  Robinson  v.  Memphis  R.  R.  Co.  9 

mentioned  in  it,  and  of  the  right  to  Fed.  Rep.    133;   Farmers'  Bank  v. 

receive  said  property  at  the  place  of  Logan,  74  N.  Y.  568. 

delivery.    Notwithstanding  it  is  de-  *  Robinson  ».  Memphis  R.  R.  Co. 

signed  to  pass  from  hand  to  hand.  9  Fed.  Rep.  133. 

with  or  without  indorsement,  and  it  4  Slollenwerck    v.  Timelier,    115 

is  efficacious  for  its  ordinary  pur-  Mass.  224;  Farmers'  Bank  v.  Hazel- 


THE  BILL  OF  LADING.  501 

§  376. — THE  FOREIGN  VIEW  OF  BILLS  OF  LADING. — The 
effect  of  a  transfer  of  a  bill  of  lading  was  considered  in  an 
early  English  case,  by  Lord  Campbell,  and  his  view  of  it 
was  followed  for  some  years.  He  declared  that  "a  bill  of 
lading  is  not,  like  a  bill  of  exchange  or  promissory  note,  a 
negotiable  instrument,  which  passes  by  mere  delivery  to  a 
bona  fide  transferee  for  valuable  consideration,  without  re- 
gard to  the  title  of  the  parties  who  make  the  transfer.  Al- 
though the  shipper  may  have  indorsed  in  blank  a  bill  of 
lading  deliverable  to  his  assigns,  his  right  is  not  affected  by 
an  appropriation  of  it  without  his  authority.  If  it  be  stolen 
from  him,  or  transferred  without  his  authority,  a  subsequent 
bona  fide  transferee  for  value,  can  not  make  title  under  it 
as  against  the  shipper  of  the  goods.  The  bill  of  lading  only 
represents  the  goods ;  and  in  this  instance,  the  transfer  of 
the  symbol  does  not  operate  more  than  a  transfer  of  what  is 
represented."1  But,  in  the  leading  case  ofTheMarie  Joseph,* 
the  Lord  Chancellor  (Lord  Chelmsford)  distinguished  the 
above  decision  as  being  very  carefully  confined  in  its  terms 
to  the  original  transfer  of  a  bill  of  lading  deliverable  to  the 
assigns  of  the  shipper,  and  that  in  the  cases  supposed,  as 
there  could  be  no  lawful  assigns  of  the  shipper,  the  bill  of 
lading  consequently  could  have  no  existence  as  a  negotiable 
instrument.  In  the  case  stated,  a  bill  of  lading  was  in- 
dorsed as  collateral -security,  for  a  valuable  consideration, 

tine,  78  K  Y.  104, 108;  The  Argen-  the  bill  of  lading  by  fraudulent  mis- 

tina  L.  R.  1  A.  &  E  370.  representations,  and  indorsed  and 

1  Gurney  v.  Behrend,  3  El.  &  Bl.  delivered  it  lo  his  bankers  as  secur- 

633.  ity  for  advances  already  made  and 

s  L.  R.  1  Pr.  C.  219.  A  bill  of  to  be  made.  Further  advances  were 
lading,  indorsed  by  the  consignor,  afterwards  made.  Before  the  arrival 
was  delivered  to  the  purchaser  for  of  the  goods  the  agent  became  bank- 
his  acceptances  of  bills  of  exchange,  rupt,  and  the  vendors  sought  to  re- 
payable at  three  months.  The  bill  claim  the  goods.  As  the  advances 
of  lading  was  immediately  delivered  of  the  pledgees  were  made  bona  fide, 
to  an  agent  of  the  consignor,  to  hold  and  without  notice  of  the  fraud,  the 
as  security  for  the  payment  of  the  right  of  the  vendors  to  stop  the 
bill  of  exchange.  A  member  of  the  goods  in  transitu  was  defeated  to  the 
firm  of  purchasers  again  obtained  extent  of  the  advances  made. 


502          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

without  notice  of  equities  arising  from  an  act  of  misappro- 
priation, and  it  was  held  a  bill  of  lading  for  the  delivery  of 
goods  to  "  order  and  assigns,"  is  a  negotiable  instrument, 
which,  by  delivery  and  indorsement,  passes  the  property  in 
the  goods  to  the  indorsee,  subject  only  to  the  right  of  the 
unpaid  vendor  to  stop  them  in  transitu.  The  indorsee  may 
deprive  the  vendor  of  this  right  by  indorsing  the  bill  of 
lading  for  a  valuable  consideration,  although  the  goods  are 
not  paid  for,  or  bills  have  been  given  for  the  price  of  them 
which  are  certain  to  be  dishonored,  provided  the  indorsee 
for  value  has  acted  in  good  faith,  and  without  notice. 
Where  a  bill  of  lading  omits  "  or  order  or  assigns  "  it  is  not 
semble  a  negotiable  instrument.1  The  French  code  recog- 
nizes the  negotiability  of  bills  of  lading,8  and  in  Germany, 
and  under  the  Spanish  code,  they  are  treated  generally  as 
bills  of  exchange.8 

§  377.  GLYN,  MILLS,  CURRIE  &  Co.  v.  EAST  AND  WEST 
INDIA  DOCKS  Co. — In  the  latest  decision  of  the  English 
House  of  Lords  arising  out  of  the  negotiation  as  collateral  of 
bills  of  lading,4  the  Lord  Chancellor  (Lord  Selborne)  held 

1  Henderson  0.  Comptoir  d'Es-  for  a  loan.  The  goods  upon  arrival 

compte,  L.  R.  5  Pr.  C.  253.  were  landed  at  the  clocks  of  the 

8  Code  de  Comra.  liv.  2,  lit.  7,  art.  defendant,  and  placed  in  their  ware- 

281.  house  by  the  shipowner,  with  a  stop- 

1  Mcyerstein  v.  Barber,  L.  R.  2  C.  order  for  freight.  The  consignees 

P.  57.  produced  to  the  dock  company  the 

4  Glyn,  Mills  &  Co.  t>.  E.  &  W.  bill  of  lading  marked  "second,"  un- 
India  Docks  Co.,  L.  R.  7  App  591.  indorsed,  the  property  being  deliv- 
Goods  were  shipped  for  London,  the  erable  to  them,  or  their  assigns,  and 
master  signing  a  set  of  three  were  registered  as  the  owners  of 
bills  of  lading,  marked  first,  second,  the  goods  upon  removal  of  the  stop 
and  third  respectively,  making  the  for  freight.  The  dock  company,  in 
goods  deliverable  to  the  consignees  good  faith  and  without  notice  of  the 
named,  or  their  assigns,  "  the  one  of  bankers'  claim,  delivered  the  proper- 
which  bills  being  accomplished,  the  ty  to  third  persons  upon  delivery- 
others  to  stand  void."  During  the  orders,  signed  by  the  consignees, 
voyage  the  consignees  indorsed  the  The  trial  court  found  in  favor  of 
bill  of  lading  marked  "first"  to  the  the  pledgee  (L.  R.  5  Q.  B.  D.  128); 
plaintiffs,  a  banking  firm,  as  security  but  the  judgment  was  reversed  in 


THE  BILL   OF  LADING.  503 

that  "  the  primary  office  and  purpose  of  a  bill  of  lading, 
although  by  mercantile  law  and  usage  it  is  a  symbol  of  the 
right  of  property  in  the  goods,  is  to  express  the  terms  of  the 
contract  between  the  shipper  and  the  shipowner.  It  is  for 
the  benefit  of  the  shipper  that  the  right  to  take  delivery 
of  the  goods  is  made  assignable,  and  it  is  for  the  benefit  and 
security  of  the  shipowner  that  when  several  bills  of  lading, 
all  of  the  same  tenor  and  date,  are  given  as  to  the  same 
goods,  it  is  provided  that  '  the  one  of  these  bills  being 
accomplished,  the  others  are  to  stand  void.'  It  would  be 
neither  reasonable  nor  equitable,  nor  in  accordance  with 
the  terms  of  such  a  contract,  that  an  assignment,  of  which 
the  shipowner  has  no  notice,  should  prevent  a  bona  fide 
delivery  under  one  of  the  bills  of  lading,  produced  to  him  by 
the  person  named  on  the  face  of  it  as  entitled  to  delivery 
(in  the  absence  of  assignment),  from  being  a  discharge  to 
the  shipowner.  Assignment,  being  a  change  of  title  since 
the  contract,  is  not  to  be  presumed  by  the  shipowner  in  the 
absence  of  notice,  any  more  than  a  change  of  title  is  to  be 
presumed  in  any  other  case  when  the  original  party  to  a 
contract  comes  forward  and  claims  its  performance,  the 
other  party  having  no  notice  of  anything  to  displace  his 
right.  He  has  notice  indeed  that  an  assignment  is  possible, 
but  he  has  no  notice  that  it  has  taken  place.  There  is  no 
proof  of  any  mercantile  usage  putting  the  shipowner,  in  such 
a  case,  under  an  obligation  to  inquire  whether  there  has 
in  fact  been  an  assignment  or  not ;  and,  in  the  absence  of 
such  usage,  I  am  of  opinion  that  it  is  for  the  assignee  to 
give  notice  of  his  title  to  the  shipowner,  if  he  desires  to 
make  it  secure,  and  not  for  the  shipowner  to  make  any  such 
inquiry." 

§  378.    BILLS  OP  LADING  MADE  NEGOTIABLE  BY  STATUTE. 
— The  character  and  mode  of  transfer  of  bills  of  lading  have 


the  court  of  appeals  (L.  R.  6  Q.B.D.      Lords,  the  latter  judgment  was  af- 
476).    Upon  appeal  to  the  House  of    .  firmed. 


504          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

been  made  the  subject  of  statutory  enactment  in  certain 
states,  and  the  element  of  negotiability,  more  or  less  restrict- 
ed, conferred  upon  them.  In  Maryland,  in  the  case  of  Bal- 
timore &  Ohio  Railroad  Company  v.  Wilkins,1  a  bill  of 
lading  was  held  not  to  be  negotiable  in  the  same  sense  as 
bills  of  exchange  and  promissory  notes,  but  soon  after,  the 
Legislature  of  that  state  enacted  a  public  act,1  declaring 
that  bills  of  lading  should  be  negotiable  instruments  and 
securities  (unless  provided  in  express  terms  to  the  contrary 
on  the  face  thereof)  "  in  the  same  sense  as  bills  of  exchange 
and  promissory  notes,"  and  in  the  hands  of  bona  fide  holders 
for  value,  without  notice,  be  as  equally  free  from  all  antece- 
dent equities.  This  statute  was  enforced  in  Tiedman  v. 
Knox.8  The  statutes  of  Pennsylvania  and  of  Missouri  pro- 
vide that  bills  of  lading  shall  be  negotiable  by  written 
indorsement  and  delivery  "  in  the  same  manner  as  bills  of 
exchange  and  promissory  notes."  The  effect  of  these  stat- 
utes where  the  bill  of  lading  negotiated  has  been  lost  or 
stolen  without  negligence,  or  the  pledgee  is  chargeable 
with  knowledge  that  the  pledger  is  not  the  owner,  or  that 
the  bill  is  held  as  security  to  pay  an  outstanding  draft,  is  not 
to  entitle  the  innocent  pledgee,  for  value,  to  all  the  privi- 
leges which  attach  to  the  holder  of  negotiable  instruments 
for  value  before  maturity  in  good  faith,  under  circumstances 
of  fraud  or  misappropriation ;  nor  is  the  pledgee  charged 
with  the  duty  of  demand,  or  notice  of  non-delivery,  nor  are 
indorsers  liable  as  on  promissory  notes  or  bills  of  exchange,4 

1  44  Md.  11.  the  consignee.     Upon  presentation 

*  Acts  of  Maryland,  1876,  Ch.  262.  of  the  draft  for  acceptance  the  con- 

*  53  Md.  612.  signee   feloniously    substituted   his 
4  Shaw  v.  Railroad  Company,  101  duplicate  tor  the  original.    This  cx- 

U.  8.  564.    A  time  draft,  drawn  by  change  of  bills  was  not  noticed  by  the 

a  consignor  at  St.  Louis,  upon  a  bank  until  some  time  afterwards; 

consignee  in  Philadelphia,  was  dis-  but  on  the  same  day  the  consignee 

counted  by  a  bank  at  St.  Louis,  with  re-indorsed  the  bill  of  lading,  and 

bill  of   lading,  duly  indorsed,   at-  obtained  another  loan  from  a  thirtl 

tached    as    collateral    security.    A  person.     As  the  second  pledgee  was 

duplicate  bill  of  lading  was  sent  to .  chargeable  with  notice  that  the  bill 


THE  BILL   OF   LADING.  505 

although  the  usual    indorsement    "  without   recourse "   is 
sometimes  made.1 

§  379.  THE  BILL  OP  LADING  A  SYMBOL  OF  PROPEETY. — 
Bills  of  lading  are  symbols  of  the  property  described  therein. 
They  are  regarded  as  so  much  grain,  provisions,  cotton, 
iron,  or  other  articles  of  property,  and  the  merchandise 
is  very  often  sold  or  pledged  by  the  transfer  of  the  symbol, 
the  bill  of  lading  covering  the  goods.  Bills  of  lading  have 
resulted  from  the  adoption  of  a  mode  of  dealing  by  symbols 
with  property  the  possession  of  which  cannot  be  immedi- 
ately delivered.  In  the  case  of  goods  which  are  at  sea, 
being  transmitted  from  one  country  to  another,  actual  pos- 
session of  them  cannot  be  delivered,  and  therefore  the  bill  of 
lading  is  considered  a  symbol  of  the  goods,  and  its  delivery 
a  delivery  of  them.  When  the  goods  have  arrived  at  the 
dock,  until  they  are  delivered  to  some  person  who  has  the 
right  to  hold  them,  the  bill  of  lading  still  remains  the  only 
symbol  that  can  be  dealt  with  by  way  of  assignment,  or 
mortgage,  or  pledge,  or  otherwise.  As  soon  as  delivery  is 
made,  or  a  warrant  for  delivery  has  been  issued,  or  an  order 
for  delivery  accepted  (which  in  law  is  equivalent  to  deliv- 
ery), then  those  symbols  replace  the  symbol  which  before 
existed.  Until  that  time  bills  of  lading  are  effective  repre- 
sentatives of  the  ownership  of  the  goods,  and  their  force  does 
not  become  extinguished  until  possession,  or  what  is  equiv- 
alent in  law  to  possession,  has  been  taken  on  the  part  of  the 
person  having  a  right  to  demand  it.* 

of  lading  in  the  possession  of  the  '  Farmers'  Bank  v.  Hazeltine,  78 

consignee  had  already  been  indorsed  N.  Y.  104;  Farmers'  Bank  v.  Atkin- 

a(3  collateral  security  for  the  pay-  son,  74  Ib.  587. 

ment  of  an  outstanding  draft,  pur-  »  Gibson  v.  Stevens,  8  How.  384 ; 

chasers  of  the  property  from  him  Dows  v.  Nat.  Exchange  Bank,  91  U. 

could  take  no  greater  rights  than  he  S.  618;  Shaw  <o.  Railroad  Company, 

himself  had  as  against  the  bank,  the  101  Ib.  564 ;  Holbrook  v.  Wright,  24 

purchase  of    the    property  having  Wend.  169;  Grosvenor  v.  Phillips,  2 

been  made  without  requiring  pro-  Hill,    147;    Bank  of    Rochester  v. 

duction  of  the  bill  of  lading  or  other  Jones,  4  N.  Y.  497 ;  Rawles  v.  Desh- 

evidence  of  title.  ler,   42    Ib.  572 ;    Marine    Bank  v. 


506          QUASI-NEGOTIABLE  COLLATERAL  SECUK1TIES. 


CHAPTER  XXXIX. 

BILLS  OF  LADING  AS  COLLATERAL. 

§380.  The  title  of  the  pledgee  of  bills  of  lading. 

381.  The  pledge  of  bills  of  lading  under  indorsement. 

382.  The  pledge  of  bills  of  lading  unindorsed. 

383.  The  pledge  of  unindorsed  bills  of  lading,  as  to  third  parties. 

384.  Pledges  of  bills  of  lading  for  antecedent  debt  and  future  advances. 

385.  And  of  reversionary  interests  in  bills  of  lading. 

§  380.  THE  TITLE  OP  THE  PLEDGEE  OF  BILLS  OF  LAD- 
iNG.-^-The  transfer  of  a  bill  of  lading  as  collateral  security 
to  a  pledgee,  who  has  advanced  money,  or  discounted  com- 
mercial paper,  in  good  faith  on  the  credit  of  the  representa- 
tions contained  therein,  without  notice,  vests  in  him  the 
legal  title  to  the  property  and  the  right  of  possession,  and 
his  title  is  good  against  all  the  world.1  No  distinction  is 

Wright,  48  Ib.;  First  Nat.  Bank  v.  B.  622;  Jenkyns  v.  Brown,  14  Q.  B. 

Kelly,  57  Ib.  34;  Farmers'  etc.  Bank  496  ;  The  Marie  Joseph,  L.  R.  1  Pr. 

v.  Logan,  74    Ib.   568;    DeWolf  «.  C.  219;  The  Argentina,  L.  R,  1  A. & 

Gardner,  12  Gush.  19;  Allen  v.  Wil-  E.  370;  Shepherd  v.  Harrison,  L.  R. 

liams,  12  Pick.  290;  First  National  5  H.  L.  116;  Barber  v.  Meyerstcin, 

Bank  v.  Dearborn,  115  Mass.  219;  L.  R.  2   C.  P.  33,  661;  4  H.  L.  317, 

National  Bank  v.  Crocker,  111  Ib.  329  (Hatherly,  Lord  Chan.);  Sanders 

163;  Hathaway  v.  Haynes,  124  Ib.  v.  Maclean,   L.  R.   11   Q.  B.  D.  327 

811 ;  Security  Bank  D.  Luttgren,  29  (Bowen,  L.  J.). 
Minn.  363;  Michigan  Cent.  R.  R.  Co.          *  Fanners'  Nat.  Bank  v.  Logan,  74 

v.  Phillips,  60  111.  190;  Peters  v.  El-  N.  Y.  568;  First  Nat.  Bank  v.  Kelly, 

liott,  78  Ib.  326 ;  Taylor  ®.  Turner,  57    Ib,    34 ;     Commercial    Bank  ®. 

87  Ib.  296;  Pettit  v.  First  Nat.  Bank,  Pfeifer,  22  Hun,  327  ;  Forbes  ».  Bos- 

4  Bush,  334;  Emery  v.  Irving  Nat.  ton  &  Lowell  R.  R.  Co.  133  Mass. 

Bank,  25  Ohio  St.  360,  366;  Heury  154;    Cairo     National     Bank     «. 

c.  Philadelphia  Warehouse  Co.  81  Crocker,   111  Mass.  163;    National 

Pa.  St.  76;  Haille  v.  Smith,  1  B.  &  Bank    9.    Bailey,   115  Ib.  288;  De 

P.  503;  Gurney  v.  Behrend,  6  El.  &  Wolf  v.  Gardner,  12  Cush.  19;  Erne- 


BILLS  OF  LADING  AS   COLLATERAL.  507 

drawn  between  the  title  of  the  pledgee  who  has  received  a 
bill  of  lading  as  collateral  security  upon  a  valuable  consider- 
ation, without  notice,  and  an  actual  purchaser.  The  legal 
title  to  the  property  passes  to  the  pledgee  as  to  the  pur- 
chaser ;  and  to  the  extent  of  his  advances,  the  pledgee  for 
value  has  all  the  protection  afforded  the  purchaser  for  value.1 
Holding  this  legal  title  to  the  property  comprised  in  the  bill 
of  lading,  although  for  the  purposes  of  collateral  security 
only,  third  persons  dealing  with  the  property  thus  shipped 
are  chargeable  with  notice,  actual  or  constructive,  as  the 
case  may  be,  of  the  terms  of  the  bill  of  lading,  so  that,  al- 
though advancing  value,  and  acting  in  good  faith,  in  the  usual 
course  of  business,  they  can  acquire  no  rights  in  opposition 
to  those  of  the  pledgee  in  the  property  covered  by  the  bills 
of  lading.*  The  pledgee  is  also  entitled,  having  the  legal 
property  in  and  at  law  the  right  to  the  possession  of  the 
goods  described  in  the  bill  of  lading,  to  maintain  an  action 
against  any  one  who,  without  justification  or  legal  excuse, 
wrongfully  converts  them.3  Such  transfer  of  a  bill  of  lading 
operates  as  a  delivery  of  the  goods  while  in  the  possession  of 
the  carrier,  and  is  as  effectual  as  if  the  goods  having  arrived 
an  actual  delivery  were  made,  vesting  a  general  or  special 
ownership  in  such  property.4  The  transfer  effects  an  appro- 


ry's  Sons  v.  Bank,  25  Ohio  St.  360',  ton  &  L.  R.  R.  Co.  9  Am.  &  E.  R.R. 

Holmes  v.  Bailey,  92  Pa.  St.  57;  Cas.  76;  Hathaway  v.  Haynes,  124 

Holmes®.  Bank,  87  Ib.  525;  Gibson  Mass.  311;  Cairo  Nat.  Bank  v. 

v.  Stevens,  8  How.  384;  Lee  a.Bowen,  Crocker,  111  Ib.  163;  DeWolf  v. 

5  Biss.  154;  Glyn  v.  Docks  Co ,  L.  R.  Gardner,  12  Cush.  19 ;  Glyn  »  E.  & 

7  App.  591;  Bardick  ».  Sewell,  13  W.  Incl.  Docks  Co.  L.R.  7  App.  591. 

Q  B.  D.  159.  606. 

1  Gibson  v.  Stevens,  8  How.  384;  4  Pollard  v.  Vinton,  105  U.  S.  3; 

Farmers'  Bank  v.  Logan,  74  N.  Y.  Dows  v.  Greene,  24  N.  Y.  638;  Com- 

568;  Commercial  Bank  v.  Pfcifer,  22  mcrcial  Bank  v.  Pfcifer,  22  llun,327; 

Hun,  327.  Meyerstein  v.  Barber,  L.  R.  2  C.  P. 

1  First  Nat.  Bank  v.  Kelly,  57  N.  53  (Erics,  C.  J.,  Willes,  Keating.  J. 

Y.  34 ;  Farmers'  Nat.  Bank  v.  Lo-  J.)  Ib.  675  (Lush,  J.)  4  H  L.  325 

gan,  74  Ib.  568.  (Hatherly,  Ld.Chan.);  Glyn  v.  E.  & 

s  Dows  v.  National  Exchange  "W.  Ind.  Docks  Co.  L.  R.  7  App.  591, 

Bank,  91  U.  S.  618;  Forbes  v.  Bos-  606. 


508          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

priation  of  the  goods,  and  change  in  their  possession,  for  the 
benefit  of  the  pledgee  advancing  money,  without  notice  of 
equities,  on  the  bills  of  lading.1  It  has  always  been  consid- 
ered a  pledge  of  the  goods  covered  by  its  terras,5  or  a  mort- 
gage of  the  goods  and  the  returns,  subject  to  be  defeated  by 
a  performance  of  the  conditions,  the  holder  of  the  bill  being 
a  mortgagee  in  actual  possession.* 

§381.  THE  PLEDGE  OF  BILLS  OF  LADING  UNDER  IN- 
DORSEMENT.— In  the  absence  of  statutory  enactments  mak- 
ing bills  of  lading  negotiable  instruments  in  the  same  sense 
as  bills  of  exchange  and  promissory  notes,  the  indorsement 
of  a  bill  of  lading  is  not  such  a  written  contract  having  a 
fixed,  definite  meaning  in  the  law,  and  presumably  com- 
plete in  itself,  as  to  exclude  from  consideration  all  express 
parol  agreements  as  to  the  conditions  annexed  to  their 
transfer ;  nor  all  inquiry  into  the  transactions  out  of  which 
they  arise.4  A  bill  of  lading  is  properly  transferable  by 
indorsement,  where  made  to  the  order  of  a  particular  person 
named,  or  assigns.  When  presented  by  the  person  actually 
named,  the  necessity  for  indorsement  does  not  exist,  and  a 
valid  delivery  may  be  made  by  a  shipowner  or  dock  com- 
pany to  such  consignee  holding  the  "  second"  of  a  set  of  bills 
of  lading  unindorsed,  although  the  *'  first "  of  the  same  be 
pledged  indorsed  for  value,  upon  a  bona  fide  loan,  but  of 
which  neither  shipowner  nor  dock  company  are  chargeable 
with  notice.5  The  transfer  by  indorsement  where  made  to 
order  of  A,  "  or  assigns,"  is  necessary  to  pass  the  title  to 

1  Holmes  v.  Bailey,  92  Pa.  St.  57;  a  Conrad  v.  Atlantic  Ins.  Co.  1  Pet. 

Holmes  v.  German'  Security  Bank,  447;  Bank  of  Rochester  v.  Jones,  4 

87  Ib.  525;  First  Nat.  Bank  v.  Kelly,  N.  Y.  497;  Marine  Bank  v.  Wright, 

57  N.  Y.  84;  Emery's  Sons  v.  Irving  48  Ib.  1;  Farmers'  Nat.  Bank  v.  Lo- 

Nat.  Bank,  -25  Ohio  St.  360;  Lee  v.  gan.  74  N.  Y.  568. 

Bowen,  5  Biss.  154.  *  Security  Bank  v.  Luttgren,    29 

*  First  Nat.  Bank  v.  Kelly,  57  N.  Minn.  862;  Dows  v.  Bank,  91  U.  S. 

Y.  84;  Pettit  v.  First  Nat.  Bank,  4  618,  633. 

Bush,  334;  Meyerstein  v.  Barber,  L.  •  Glyn  c.  E.  &  W.  Ind.  Docks  Co., 

R.  2  C.  P.  676  (Martin,  B.).  L.  R.  7  App.  591. . 


BILLS   OF  LADING  AS   COLLATEEAL. 


509 


the  goods.1  Indorsements  in  blank  are  sufficient  to  pass  the 
legal  title,*  but  an  indorsement,  without  delivery,  is  a 
nullity.8 

Indorsement  of  the  bill  of  lading  is  required  in  England 
to  pass  the  title  to  the  property  represented  by  it,  although 
where  actual  possession  of  the  property  has  been  obtained, 
under  an  unindorsed  bill  of  lading,  the  title  of  the  holder  of 
the  bill  is  protected.*  Ordinarily,  no  rights  can  be  acquired 
under  the  delivery  of  an  unindorsed  bill  of  lading.  In  a 
leading  case,  at  an  early  day,  a  consignor  of  goods  sent  to  a 
consignee,  with  the  usual  invoice,  an  unindorsed  bill  of 
lading,  and  at  the  same  time,  forwarded  an  indorsed  bill  of 
lading  to  his  agent,  accompanied  by  a  bill  of  exchange,  to 
be  presented  for  acceptance,  upon  the  accomplishment  of 
which  the  indorsed  bill  of  lading  was  to  be  delivered.  Upon 
a  refusal  to  accept  the  bill  of  exchange,  the  title  to  the 
property  remained  in  the  consignor,  no  interest  passing  by 
the  mere  delivery  of  an  unindorsed  bill  of  lading.5  In  a 
later  case,  where  no  bill  of  lading  was  sent  to  the  consignee 
with  the  invoice  of  the  goods,  but  the  bill,  attached  to  a 
bill  of  exchange  drawn  upon  the  consignee,  was  sent  to  the 


1  Conrad  v.  Atlantic  Ins.  Co.  1 
Pet.  445;  The  Thames,  14  Wall.  106; 
Gibson  «.  Stevens,  8  How.  384; 
Shaw®.  Railroad  Co.  101  U.  S.  564; 
Walter®.  Ross,  2  Wash.  283;  Michi- 
gan Central  R.  R.  Co.  v.  Phillips,  60 
111.  198;  Western  Union  R.  R.  Co. 
v.  Wagner,  65  Ib.  198;  Skilling  v. 
Bollman,  73  Mo.  665;  Thompson  v. 
Dominy,  14  M.  &  W.  403;  Cald- 
well  v.  Ball,  1  Term,  205;  Wright  v. 
Campbell,  2  Burr.  2051;  Kreft  v. 
Thompson,  L.  R.  10  Ex.  285  ;  Short 
D.  Simpson,  L.  R.  1  C.  P.  248;  Glyn 
v.  E.  &  W.  I.  Docks  Co.,  L.R.  7  App. 
591 ;  Henderson  «.  Comptoir,  L.  R. 
5  Pr.  C.  253. 

*  Shepherd  v.  Harrison,  L.  R.  4  Q. 


B.  204;  Hobart  v.  Littlefield,  13  R.  I. 
341. 

3  Bufflngton  v.  ^Curtis,   15  Mass. 
528. 

4  Kreft  v.  Thompson,  L.  R.  10  Ex. 
285;  Short  v.  Simpson,  L.  R.  1  C. 
P.  248;  Shepherd  «.  Harrison,  L.  R. 
4  Q.  B.  204 ;  Coxe  v.  Harden,  4  East, 
211,  217;  Thompson  v.  Dominy,  14 
M.  &  W.  403;  Wait  v.  Baker,  2  Ex. 
1 ;  Henderson  v.  Comptoir,  L.  R.  5 
Pr.  C.  253. 

6  Brandt  v.  Bowiby,  2  B.  &  Ad. 
932.  A  mere  delivery  of  an  unin- 
dorsed bill  of  lading  is  not  sufficient 
to  constitute  an  appropriation  of  the 
property.  Wait  t>.  Baker,  2  Ex.  1,  5. 


510          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

agent  of  the  consignor  at  the  same  place  to  be  delivered 
upon  acceptance  of  the  bill  of  exchange,  Cockburn,  C.  J.  of 
the  Court  of  Queen's  Bench,  said :  "  Here  we  have  not  an 
unindorsed  bill  of  lading  sent  to  the  consignee,  but  no  bill  of 
lading  at  all  sent.  I  see  no  difference  in  principle  between 
sending  a  bill  of  lading  which,  not  being  indorsed,  is  inoper- 
ative and  amounts  to  nothing,  and  not  sending  a  bill  of  lad- 
ing at  all."1 

§  382.  THE  PLEDGE  OF  BILLS  OF  LADING  UNINDOHSED. 
— A  bill  of  lading  issued  by  a  carrier  on  land  or  \vater  is,  in 
the  United  States,  in  the  absence  of  statutory  enactment, 
transferable  by  delivery.  The  effect  of  such  delivery  is  to 
vest  in  the  pledgee,  who  has  made  a  bona  fide  advance,  the 
like  legal  title  to  the  property,  and  the  right  of  possession,  as 
in  the  case  of  an  indorsement  of  the  bill  of  lading.  The 
pledgee  takes  more  than  the  mere  equitable  title  which  passes 
upon  the  delivery  unindorsed  of  a  bill  of  exchange  or  prom- 
issory note.  The  bill  of  lading  is  the  only  evidence  of  own- 
ership of  his  property  which,  after  delivery  to  the  carrier, 
the  pledgor  has.  It  is  the  voucher  or  acknowledgment  by 
which  the  owner  is  enabled  to  show  his  right  to  the  prop- 
erty after  such  delivery,  and  his  only  way  to  transfer  such 
property  is  by  indorsement  and  delivery,  or  by  delivery 
alone,  of  the  documents  of  title  which  he  holds.  A  delivery 
of  the  bill  of  lading  is  generally  sufficient.*  A  bill  of  lading, 

1  Shepherd  v.  Harrison,  L.  R.  4  Q.  Miss.  R.  R.  Co.  v.  Kerr,  49  111.  459: 

B.  204.  DeWolf  v.  Gardner.  12  Gush.  19; 

'Michigan  Central  R.  R.  Co.  v.  Hathaway  v.  Haynes,  124  Mass. 311; 

Phillips,  60  111.  198;  Peters  B.Elliott,  National  Bank  v.  Dearborn,  115 

78  Ib.  327;  Allen  ®.  Williams,  12  Mass.  219;  Forbes  v.  Boston  &  L.  R. 

Pick.  302  (Shaw,  C.  J.);  Bank  of  R.  Co.  9  Am.  &  E.  R.  R.  Cas.  76; 

Rochester  v.  Jones,  4  N.  Y.  497  ;  Holmes  v.  German  Security  Bank, 

Marine  Bank  v.  Wright,  46  Barb.  87  Pa.  St.  525;  The  Thames,  14  Wall. 

45  ;  City  Bank  v.  Rome  R  R.  Co.  44  98 ;  Dows  v.  National  Exch.  Bank, 

N.  Y.  136;  Merchants'  Bank  v.  Union  91  U.  S.  618;  Nathan  v.  Giles,  5 

R.  R.  Co.  69  Ib.  373;  Becker  v.  Hall-  Taunt.  558;  Lickbarrow  v.  Mason, 

garten,  86  N.  Y.  167;  Farmers'  etc.  1  H.  Bl.  360:  Meyerstein  v.  Barber. 

Bank  ».  Lognu,  74  Ib.  568;  Ohio  &  L.  R.  4  II.  L.  325;  2  C.  P.  33. 


BILLS    OF   LADING   AS   COLLATERAL.  511 

however,  although  symbolical  of  the  property  represented 
thereby,  and  like  the  property  it  represents,  may  be  trans- 
ferred by  delivery,  is  unlike  commercial  paper  in  this, 
that  the  assignee  cannot  acquire  a  better  title  to  the  prop- 
erty thus  symbolically  delivered  than  his  assignor  had  at  the 
time  of  the  assignment.1 

A  bill  of  lading  making  the  property  deliverable  to  the 
consignee  "  or  bearer,"  passes  the  title  to  the  property  de- 
scribed, upon  delivery  of  such  bill  by  the  shipper  to  a  holder 
for  value,  without  notice,  as  against  everybody  but  a  prior 
assignee  for  value  of  another  of  the  set  of  bills.8  The  mere 
insertion  of  the  name  of  the  consignee  in  the  bill  of  lading 
passes  no  right  or  title  to  him  until  delivery  of  the  bill  of 
lading  by  some  one  authorized;3  although  the  carrier  may 
treat  the  consignee  as  the  owner  of  the  goods,  until  notice, 
either  actual  or  presumptive,  that  one  of  the  set  of  bills  of 
lading  is  held  by  a  pledgee  or  other  holder  for  value,  with- 
out notice.  A  delivery  to  such  consignee,  upon  the  produc- 
tion of  an  unindorsed  bill  of  lading,  is  in  the  absence  of  such 
notice,  a  good  discharge  to  the  shipowner,  or  any  one  hold- 
ing the  goods,  and  subject  to  the  same  liabilities.4  Even 
where  such  bill  of  lading  is  drawn  "  to  order,"  a  delivery 
thereof  unindorsed  is  sufficient  to  pass  the  title  to  the  prop- 
erty, if  such  be  the  intention  of  the  parties  to  the  transfer.8 

1  Emery    «.    National    Bank,    25  4  Stone  v.  "West  St.  Louis  Transfer 

Ohio  St.  360  ;  Toledo  Ry.  Co.  v.  Gil  Co.  9  Bradw.  48  ;  O'Dougherty  v. 

vin,  81  111.  511.  Railroad  Co.  1  Thomps.  &  C.  477; 

*  Allen  v.  Williams,  12  Pick.  297;  Sweet  v.  Barney,  23  N.  Y.  335 ;  Law- 

Buffington  v.  Curtis,  15  Mass.  528 ;  rence    v.  Minturn,    17    How.    100 ; 

Marine  Banks.  Wright,  46  Barb.  45;  Glyn  ».  East  &  W.  India  Docks  Co., 

Nathan    v.    Giles,    5    Taunt.    558 ;  L  R.  7  App.  591. 

Meyerstein  v.  Barber,  L.  R  4  H.  L.  *  City  Bank  v.  Rome  etc.  Ry.  Co. 

325 ;    Skilling  v.  Bollman,  73   Mo.  44  N.  Y.  186 ;  Merchants'  Bank  v. 

665;  National  Bank  v.  Wallbridge,  Union  R.  R.  Co.,  69  Ib.  373  ;  Becker 

19  Ohio  St.  419 ;  Emery  D.   Irving  v.  Hallgarten,  86  Ib.  167  ;  Walter  V. 

Nat.  Bank,  25  Ib.  360.  Ross,  2  Wash.  283  ;  Wiseman  v.  Van- 

3  Skilling  v.  Bollman,  73  Mo.  665  ;  derpat,  2  Vern.  203. 
Allen    v.  Williams,    12  Pick.  297; 
Bufflngton  v.  Curtis,  15  Mass.  528. 


512       QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

§  383. — THE  PLEDGE  OF  UNINDOBSED  BILLS  OF  LADING, 
AS  TO  THIRD  PARTIES. — The  pledgee  for  value,  without 
notice,  of  a  bill  of  lading,  receiving  the  same  by  delivery  un- 
indorsed,  is  vested  with  a  title  to  the  property  covered  by 
the  bill  which  is  preferred  to  that  of  a  factor  or  agent  of  the 
consignor  to  whom  the  goods  were  consigned,  although  the 
consignor  be  indebted  to  him  for  advances  made  on  previous 
shipments.1  And  where  such  factor  or  agent  has  obtained 
possession  of  the  goods,  and  sold  the  same,  a  pledgee  for 
value  of  the  bill  of  lading,  who  has  advanced  funds  upon  a 
bill  of  exchange  drawn  for  the  purchase  money  of  the  goods, 
the  acceptance  of  which  has  been  refused  by  the  factor  or 
agent,  is  entitled  to  an  action  as  against  such  factor  or 
agent,  for  the  value  of  the  property,  or  he  may  ^ratify  the 
sale,  and  recover  the  proceeds.*  The  pledgee's  title,  re- 
ceiving a  bill  of  lading  unindorsed,  is  supported  as  again  a 
creditor  of  the  pledger  who  has  levied  an  attachment  upon 
the  goods.*  And  also  as  against  an  owner  of  property  cov- 
ered by  a  bill  of  lading,  who  has  made  a  sale  and  delivery 
of  it  to  a  third  person,  although  the  contract  required  pa}'- 
ment  before  delivery.  The  third  person,  having  obtained 
possession,  and  fraudulently  shipped  the  property,  received 
a  bill  of  lading,  which  he  pledged  as  collateral  security  for 
a  bill  of  exchange,  upon  which  advances  were  made  in  good 
faith,  and  without  notice.4  The  claims  of  a  pledgee  for  value 
were  supported,  where  bona  tide  advances  were  made  before 
the  bill  of  lading  was  issued,  the  property  being  under  con- 
trol of  the  pledgee,  and  the  latter  subsequently  receiving  a 
bill  of  lading  unindorsed.' 


1  Bank  of  Rochester  ®.  Jones,  4  *  Michigan  Central  R.  R.  Co.  t>. 

N.  Y.  497;  Emery  v.  Irving  Nat.  Phillips,  60  111.  190;  National  Bank 

Bank,  23  Ohio  St.  360,  866.  v.  Dearborn,  115  Mass.  219. 

8  Davenport  Nat.  Bank  ®.  Horn-  *  Becker  v.  Hallgartcn,  86  N.  Y. 

eyer,  45  Mo.  145;  Allen  v.  Williams,  167;  Dunbrowt).  McDonald,  SBosw. 

12  Pick.  297.  130;  Winne  v.  McDonald,  39  N.  Y. 

*  Pettit  v.  Firet  Nat.  Bank,  4  244 ;  Cartwright  ».  Wihncrding,  24 

Bush,  334.  Ib.  521. 


BILLS  OF  LADING  AS  COLLATERAL.  513 

§  384. — PLEDGES  OF  BILLS  FOR  ANTECEDENT  DEBT  AND 
FCTCTRE  ADVANCES. — The  transfer  of  bills  of  lading  by  the 
owner  as  collateral  security  for  an  antecedent  debt,  without 
more,  constitutes  the  pledgee  a  holder  for  value,  in  the  usual 
course  of  business.  The  negotiation  of  a  bill  of  lading,  with 
or  without  indorsement,  passes  the  legal  title  to  the  prop- 
erty represented  by  it,  and  has  the  same  effect  as  a  delivery 
of  the  goods,  and  is  in  fact  the  only  delivery  which  can  be 
made  of  such  property  while  in  transitu ;  and  as  a  pledge  of 
personal  property,  with  possession,  for  a  pre-existing  debt  is 
valid,  a  pledge  of  a  bill  of  lading,  vesting  constructive  pos- 
session of  the  property  in  the  pledgee  is,  under  the  same 
circumstances,  equally  valid.1  As  said  by  an  English  judge, 
"  If  the  pledgee  had  said,  *  I  cannot  take  this  bill  of  lading, 
as  the  consideration  would  be  past ;  do  it  with  the  broker 
next  door,  and  give  me  his  check,'  that  would  be  valid  ;  but 
is  it  desirable  to  introduce  such  niceties  into  commercial 
law  ?"2  A  pledgee  of  a  bill  of  lading  for  an  antecedent 
debt  is  supported  as  against  a  vendor's  right  of  stoppage  in 
transitu,  and  as  against  subsequent  purchasers  of  the  prop- 
erty, for  value,  without  notice,  claiming  them  under  a  du- 
plicate bill  of  lading,  indorsed,  and  with  actual  delivery  of 
the  goods.8  New  consideration  is  sufficient  to  support  a 
pledge  of  a  bill  of  lading  for  an  antecedent  debt,  as  an  aban- 
donment of  threatened  legal  proceedings,  or  the  surrender 
of  other  securities,  etc.4  In  jurisdictions  where  the  re- 
stricted rule  prevails,  the  transfer  of  a  bill  of  lading  as  col- 
lateral security  for  an  antecedent  indebtedness,  without 
further  consideration,  will  not  constitute  the  indorsee  a 

1  Skilling  v.  Bollman,  73  Mo.  665;  692;  Macnee  v.  Gorst,   L.  R  4  Eq. 

Tiedman  v.  Knox.  53  Md.  612;  Hal-  315:  Portalis  v.  Tetley,  L.  R.  5  Ib. 

sey  ®.  Warden,  25  Kan.  128;  Peters  140. 

v.  Elliott,  78  111.  325.  *  Skilling  v.  Bollman,  73  Mo.  665; 

s  Leask  v.  Scott,  L.  R.  2  Q.  B.  D.  Peters  v.  Elliott,  78  111.  325;  Halsey 

376  (Bramwell,  J.);  overruling  on  v.  Warden,  25  Kan.  128. 

this    point     Rodger     v.    Comptoir  4  Leask  v.  Scott,  L.  R.  2   Q.  B.  D. 

D'Escompte,    L.   R.  2  Pr.  C.  405;  37G. 
Jewan  v.  Whitworth,  L.  R.  2  Eq. 
33 


514          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

holder  for  value  so  as  even  to  preclude  the  vendor  of  the 
goods  from  exercising  the  right  of  stoppage  in  transitu.1 

A  pledge  of  bills  of  lading  was  supported  upon  an  agree- 
ment to  furnish  future  advances  as  against  other  pledgees 
chargeable  with  notice  of  such  agreement  when  making 
their  own  advances.  A  shipment  of  goods  was  made  by 
the  owner,  under  an  agreement  by  which  the  consignee  had 
already  advanced  funds,  and  agreed  to  make  further  ad- 
vances upon  receiving  the  bills  of  lading  as  security.  The 
legal  title  to  the  property  vesting  in  the  pledgee  under  the 
agreement,  a  third  person,  receiving  another  bill  of  lading 
of  the  same  goods  obtained  by  fraud,  although  before  the 
actual  delivery  of  the  first  bill  to  the  pledgee,  but  who 
made  no  advances  until  after  knowledge  of  the  pledge  of  the 
first  bill,  could  acquire  no  interest  in  the  proceeds  of  the 
property,  except  as  subject  to  the  payment  of  the  subse- 
quent as  well  as  the  prior  advances  of  the  first  pledgee.* 

§  385.  AND  OF  REVERSIONARY  INTERESTS  IN  BILLS  OF 
LADING. — A  consignee,  or  commission  merchant,  or  factor 
who  has  pledged  a  bill  of  lading  as  security  for  a  debt 
which  does  not  exhaust  the  whole  value  of  the  goods,  may 
re-pledge  the  same  for  the  remainder  of  its  value  to  a  third 
person,  to  secure  another  debt.  Notwithstanding  the  first 
pledge,  the  goods  or  documents  of  title  remain  in  the  con- 
trol of  the  consignee  or  factor  being  in  possession  of  another 
person  in  his  behalf,  to  the  extent  to  which  they  are  not 
exhausted  by  such  pledge.  They  are  subject  to  redemption 
upon  the  payment  of  the  debt,  at  maturity,  and  the  princi- 
pal, after  such  pledge  and  re-pledge,  cannot  withdraw  them 
except  upon  the  equitable  terms  of  discharging  the  valid 
claims  of  the  pledgees.  Upon  a  notice  of  the  re-pledge  to 
the  first  pledgee,  and  his  assent  to  hold  any  surplus  of  the 

1  Loeb    v.  Peters,  53    Ala.    243;         'Stevens  v.  Boston    R  R.  Co.  8 
Harris  v.  Smith.  17  N.  Y.  249;  Les-      Gray,  262. 
sassier  v.  Southwestern  R.  R.  Co.  2 
Wood's  C.  C.  35. 


THE  PLEDGEE  AND  THE  CARRIER.  515 

proceeds  for  the  benefit  of  the  second  pledgee,  equity  can 
give  no  relief  to  the  principal  as  against  the  pledgees. 
In  the  event  of  intervening  bankruptcy,  the  principal  may 
prove  his  claim  against  the  estate  of  the  consignee  or 
factor.1 


CHAPTER  XL. 

THE  PLEDGEE'S  TITLE,  AS  AGAINST  CARRIER 


§386.  Delivery  of  goods  essential  to  valid  bill  of  lading. 

387.  Bill  of  lading  valid,  upon  subsequent  delivery. 

388.  Without  delivery,  no  title  acquired  by  innocent  pledgees, 

389.  No  recovery  by  pledgee,  as  against  carrier. 

390.  The  exceptional  rule  in  New  York,  under  equitable  estoppel. 

391.  The  like  rule  applied  in  Kansas  and  Nebraska. 

392.  The  bill  of  lading,  as  a  receipt,  open  to  explanation. 

393.  Estoppel  of  carrier  to  explain  receipt  as  against  pledgees. 

394.  The  pledgee's  rights  against  carrier  for  non-delivery. 

395.  Notice  to  carrier,  when  required  of  pledgee. 

396.  The  pledgee  of  the  first  indorsed  of  bills  preferred. 


§  386.  DELIVERY  OF  GOODS  ESSENTIAL  TO  VALID  BILL 
OF  LADING. — The  delivery  of  goods  represented  by  a  bill 
of  lading  to  a  carrier  by  land  or  water  is  of  essential  im- 
portance to  give  the  bill  of  lading  validity.  Without  such 
delivery,  in  fact,  no  bill  of  lading,  binding  upon  the  prin- 
cipal, can  be  issued  by  any  master  of  a  ship  or  agent  of  an 
inland  transportation  company.  The  two-fold  character  of 
the  bill  of  lading  enforces  the  rule,  as  it  purports  to  be  a 
receipt  for  the  property  described  therein,  and  a  contract 
to  carry  and  deliver  the  same,  according  to  its  terms.  Such 
contract  can  have  no  existence  in  the  absence  of  an  actual 
receipt  of  goods.  The  entire  bill  of  lading  in  such  event  is 

1  Portalis  v.  Tetley,  L.  R.  5  Eq.  140. 


510          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

a  nullity  and  worthless,  in  the  hands  of  any  holder  for  value. 
Nor  is  the  issue  of  such  bill  of  lading  supported  upon  any 
rule  of  equitable  estoppel  as  founded  upon  the  acts  of  the 
shipmaster  or  agent  of  an  inland  transportation  company, 
clothed  with  apparent  authority  to  issue  the  same.  Until 
receipt  of  the  goods,  no  apparent  authority  arises  to  issue 
bills  of  lading,  and  no  agency  can  exist  to  bind  the  principal. 
No  duty  or  liability  arises  as  to  the  shipowner  or  inland 
carrier  as  to  property  never  received.  It  is  doubtful  if  a 
transportation  company  could,  by  a  vote  of  its  stockholders 
or  directors,  issue  a  valid  bill  of  lading  where  no  goods 
were  received  by  it.  The  result  follows  necessarily  from 
the  fact  that  bills  of  lading  are  not  negotiable  instruments, 
or  representations  of  money ;  but  are  documents  of  goods, 
symbols  of  property,  and  their  transfer  as  collateral  security 
for  advances  is  a  pledge  of  the  goods.  They  perform  dif- 
ferent functions  from  commercial  paper.  Inquiry  may 
always  be  made  as  to  the  original  transaction,  and  if  the 
issue  of  the  bill  of  lading  is  a  fraud,  by  reason  of  non-deli- 
very, no  rights  can  be  acquired  thereunder  by  any  one.1 

§337. — BILL  OP  LADING  VALID  UPON  SUBSEQUENT  DE- 
LIVERY.— Where  a  bill  of  lading  has  been  issued  by  a  ship- 
master or  agent  of  an  inland  transportation  company,  upon 
a  promise  of  immediate  delivery,  a  delivery  of  the  goods  in 
accordance  with  such  promise,  will  validate  the  bill  of  lading, 

1  Pollard  ®.  Vinton,  105  U.  S.  3;  Ry.  Co.  22  La.  Ann.  446;  Baltimore 

The  Lady  Franklin,  8  Wall.  325;  &  O.R.R.Co.  t>.  Wilkins,  44  Md.  11; 

The     Keokuk,    9     Ib.     517,    519;  Ticdman  v.  Knox,  53  Ib.  612;  Dean 

Schooner  Freeman  v.  Buckingham,  «.  King,  22  Ohio  St.  118.     A  bill  of 

18  How.  182;  Robinson  v.  Memphis  lading  signed  in  blank  by  the  master 

R.R.CO.  9  Fed.  Rep.  129;  The  Loon,  is  void,  even  in  the  hands  of  a  bona 

7  Blatchf.  244;  The  Joseph  Grant,  1  fide  holder.  The  Joseph  Grant.supra. 

Biss.  193  ;  The  Marengo,  6  McLean,  Lickbarrow  v.  Mason,  1  Smith's  L. 

487;  The  Mayflower,  3  Ware,  300;  Cas.  1205,  m.  p.  900;  Jessel  v.  Bath, 

King  v.  Shepherd,  3  Story,  349,  360;  2  Ex.  267;    Brown   v.    Powell  etc. 

Stone  v.  West  St  Louis  Transfer  Co.  Co.  10  C.  P.  562  ;  Grant  v.  Norway, 

9   Bradw.   48;   Hunt  v.  Mississippi  10  C.  B.  665. 


THE  PLEDGEE  AND   THE  CARRIER.  517 

although  there  be  no  goods  actually  received  at  the  time  of 
its  issue,  and  the  bill  of  lading  has  been  pledged  as  collateral 
security  for  an  advance,  prior  to  the  actual  delivery  of  the 
property.  The  receipt  of  the  goods  by  the  carrier  has  a  re- 
troactive effect,  as  if  the  delivery  of  the  goods  and  the  exe- 
cution of  the  bill  of  lading  had  been  concurrent  acts.1 
There  is  no  element  of  illegality  or  any  such  vice  in  the 
contract  that  it  is  void  or  incapable  of  confirmation  by  acts 
of  the  parties ;  and  the  old  bill  of  lading  is  as  good  as  a  new 
one  issued  on  delivery  of  the  goods,  upon  the  consent  of  the 
parties.2  Nor  where  the  issue  of  bills  of  lading,  where  no 
goods  had  been  delivered  for  shipment,  is  made  a  statutory 
offense,  with  a  view  to  prevent  frauds,  will  the  statute  be 
so  construed  as  to  render  inoperative  a  subsequent  delivery 
of  the  goods.  If  this  were  allowed,  the  act  itself  would  be 
made  an  aid  to  fraud.8 

§  388. — WITHOUT  DELIVERY,  NO  TITLE  ACQUIRED  BY 
INNOCENT  PLEDGEE  FOR  VALUE. — The  invalidity  of  a  bill  of 
lading  issued  by  a  shipmaster  or  agent  of  an  inland  trans- 
portation company,  where  no  goods  have  in  fact  been  re- 
ceived for  carriage,  affects  the  title  of  third  persons  acquir- 
ing interests  in  such  bills  of  lading  as  it  does  the  title  of  the 
immediate  parties.  A  lender  of  money,  although  acting  in 
good  faith,  and  without  notice  of  the  fraud,  who  advances 
upon  a  bill  of  lading  thus  illegal  and  void,  can  acquire  no 
better  title  than  is  possessed  by  the  person  from  whom  he 
receives  the  same  as  collateral.  Nor  is  such  ship-owner  or 
inland  transportation  company  estopped,  as  against  such 
innocent  person,  to  show  the  facts,  as  the  act  of  the  agent 
is  absolutely  void.4  The  rights  of  a  pledgee  of  bills  of 

1  Halliday  v.  Hamilton,  11  Wall.  Co.    16    Fed.    Rep.   57  (Hammond, 

560;  The  Idaho,  93  U.  S.  575;  The  J.). 

L.  J.  Farwell,  8  Biss.  61;  Robinson  '  The  Idaho,  93  U.  S.  575,  582. 

«.  Memphis  Ry.  Co.  16  Fed.  Rep.  57;  4  Pollard  v.  Vinton,  105  U.  S.  5 ; 

Rowley  «.  Bigelow,  12  Pick.  314.  Schooner  Freeman  v.  Buckingham, 

*  Robinson  v.  Memphis  &  C.  Ry.  18  How.  182;  The  L.  J.  Farwell,  8 


518          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

lading  advancing  money  thereon  in  good  faith  and  without 
notice  of  the  fraud  that  no  goods  had  been  delivered,  and 
that  the  bill  of  lading  was  void,  were  considered  by  the 
United  States  Supreme  Court,  in  Schooner  Freeman  v. 
Buckingham,1  the  decision  being  characterized  as  *'  conclu- 
sive" in  a  late  case  in  the  same  court.9  The  court  say: 
"  The  taker  [of  a  bill  of  lading]  assumes  the  risk,  not  only 
of  the  genuineness  of  the  signature,  and  of  the  fact  that  the 
signer  was  the  master  of  the  vessel,  but  also  of  the  apparent 
authority  of  the  master  to  issue  the  lull  of  lading.  We  say 
the  apparent  authority,  because  any  secret  instructions  by 
the  owner,  inconsistent  with  the  authority  with  which  the 
master  appears  to  be  clothed,  would  not  affect  third  persons. 
But  the  master  of  a  vessel  has  no  more  apparent  authority 
to  sign  bills  of  lading  than  he  has  to  sign  bills  of  sale  of  the 
ship.  He  has  an  apparent  authority,  if  the  ship  be  a  general 
one,  to  sign  bills  of  lading  for  cargo  actually  shipped  ;  and 
he  has  also  authority  to  sign  a  bill  of  sale  of  the  ship  when, 
in  case  of  disaster,  his  power  of  sale  arises.  But  the  au- 
thority in  each  case  arises  out  of  and  depends  upon  a  par- 
ticular state  of  facts.  It  is  not  an  unlimited  authority  in 
one  case  more  than  in  the  other  ;  and  his  act  in  either  case 
does  not  bind  the  owner  even  in  favor  of  an  innocent  pur- 
chaser, if  the  facts  on  which  his  power  depended  did  not 
exist;  and  it  is  incumbent  upon  those  who  are  about  to 
change  their  condition  upon  the  faith  of  his  authority,  to 
ascertain  the  existence  of  all  the  facts  upon  which  his  au- 
thority depends." 

Biss.  61;  The  Loon,  7  Blatchf.  246;  Hunt  v.  Miss.  Ry.  Co.   29  Ib.  446; 

Robinson  v.  Memphis  R.  11.  Co.  9  Brown  v.  Powell  etc.  Co.  L.  R.  10  C. 

Fed.  Rep.  129,  140;  8  c.  16  Ib.  57;  P.  562;  Jesscll  «.  Buth,  L.  R.  2  Ex. 

Sears  ».  Wingate,  3  Allen,  103;  Stone  267;    Grant  v.  Norway,    10   C.   B. 

«.  W.  St.  L.  etc.  Co.  9  Brad w.  48;  B.  104;    Hubbersty  ».  Ward,  8  Exch. 

&O.R.R.  Co.  v.  Wilkins,  44  Md.  11;  330;  Coleman  v.    Riches,    16   C.  B. 

Tiedman  t>.  Knox,  53  Ib.  612;  Nat-  104. 

ional  Bank  «.  Lavielle,  52  Mo.  380;  !  Schooner  Freeman  v.  Bucking 

Dean  v.  King.  22  Ohio  St.  118;  Fel-  ham,  18  How.  182. 

lows  t>.  Powell,  16  La.  Ann.  316;  *  Pollard  v.  Vinton,  105  U.  S.  5. 


THE   PLEDGEE   AND   THE   CARRIER.  519 

§  389.  NO  RECOVERY  BY  PLEDGEE,  AS  AGAINST  CAR- 
RIER.— The  rule  under  which,  as  stated,  pledgees  of  bills  of 
lading,  fraudulently  issued  by  agents  or  shipowners,  with- 
out any  receipt  of  goods,  although  paying  value,  in  good 
faith,  and  without  notice,  can  acquire  no  right  of  action  as 
against  the  carrier  or  shipowner,  was  applied  in  the  leading 
case  of  Schooner  Freeman  #.  Buckingham.  Two  bills  of 
lading  were  issued  by  the  shipmaster,  certifying  that  the 
property  described  had  been  received  upon  the  vessel,  and 
stating  the  contract  of  carriage  and  the  point  of  delivery. 
These  bills  of  lading  were  offered  by  the  consignee  as  col- 
lateral security  for  an  advance,  and  a  bona  fide  loan  was 
made.  It  subsequently  appeared  that  no  such  property,  as 
stated  in  the  bills  of  lading,  had  ever  been  received  on  board 
the  vessel,  the  issue  of  the  bills  of  lading  being  a  fraud  on  the 
part  of  the  person  having  control  of  the  ship.  The  pledgee 
libelled  the  boat,  but  as  against  the  shipowner,  no  recovery 
was  allowed.1  Upon  a  shipment  of  cotton  by  railroad,  a 
cotton  merchant  in  New  York  accepted  and  paid  a  draft 
drawn  by  a  buyer  of  cotton  in  Memphis,  a  bill  of  lading  of 
the  cotton  being  attached  to  the  draft  as  collateral  security. 
The  merchant  demanded  the  cotton  of  the  railroad  company, 
but  it  was  shown  that  the  bill  of  lading  had  been  issued 
fraudulently  by  its  agent,  no  cotton  having  in  fact  been 
received  ;  and  that  the  agent  had  no  authority  to  sign  bills 
of  lading  until  property  had  been  delivered  by  the  con- 
signor.* The  rule  as  stated  was  applied  in  a  case  where  it 
was  sought  to  charge  the  owner  of  a  steamboat  engaged  in 
carrying  cotton  from  a  southern  port,  upon  a  bill  of  lading 
for  which  no  cotton  had  in  fact  been  received.  A  bill  of 
lading,  however,  had  been  issued,  describing  certain  bales 
of  cotton  as  being  shipped  upon  the  steamboat,  to  which  a 
bill  of  exchange  was  attached  and  forwarded  to  the  con- 
signees, who,  before  the  arrival  of  the  steamboat,  paid  the 
draft,  and  received  the  bill  of  lading.  Upon  arrival  of  the 

1  Schooner  Freeman  v.  Bucking-          *  Robinson  v.  Memphis  Ry.  Co,  9 
ham,  18  How.  182.  Fed.  Rep.  129  ;  s.  c.  16  Ib.  57. 


520         QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

steamboat,  it  appeared  that  no  cotton,  as  stated  in  the  bill 
of  lading,  had  ever  been  delivered  on  the  steamboat,  nor  on 
the  wharf,  nor  to  the  agents  of  the  boat.  The  act  of  issuing 
a  bill  of  lading  under  such  circumstances  being  clearly 
beyond  the  authority  of  the  officer,  no  recovery  was  per- 
mitted as  against  the  shipowner.1 

§  390.  THE  EXCEPTIONAL  RULE  IN  NEW  YORK,  UNDER 
EQUITABLE  ESTOPPEL. — Under  the  influence  of  decisions 
founded  on  the  rules  of  equitable  estoppel  as  applied  to 
bon a  fide  holders  for  value,  without  notice,  of  certificates  of 
stock  and  other  indicia  of  title,*  and  the  consideration  that 
the  issue  by  a  shipmaster  or  agent  of  a  railroad  company  of 
a  bill  of  lading  under  a  general  authority  to  issue  such  doc- 
uments, is  the  act  of  the  shipowner  or  eompany~for  which 
the  latter  are  responsible,  the  courts  of  two  or  .three  states, 
including  New  York,  have  declined  to  follow  the  rule 
announced  in  Grant  v.  Norway,8  which  is  generally  approved 
both  in  this  country  and  in  England.  Where  a  bill  of  lad- 
ing, indorsed  where  required,  is  in  the  hands  of  a  third 
person,  a  pledgee  for  value  advanced  on  the  faith  of  the 

1  Pollard  v.  Vinton,  105  U.  S.  5.  value  advanced  in  good  faith  and 

*  New  York  &  N.  H.  R.R.  Co.  v.  without  notice,  was  chargeable  with 

SchuyJer.  34  N.  Y.  73;  McNeil  v.  notice  of  the  express  limitation  of 

Tenth  Nat.  Bank,  46  Ib.  325;  Moore  the  authority  of  the  shipmaster  that 

V.  Metropolitan   Nat.    Bank,  55  Ib.  no  valid  bill  of    lading    could  be 

41;  Griswold  v.  Haven,  25  Ib.  595;  issued  where  no  delivery  of  goods 

Brown  v.  Bowen,  30  Ib.  519;  Shap-  had  been  made.    The  fact  that  the 

ley  v.  Abbott.  42  Ib.  443.  representations  of  the  carrier  were 

8  10  C.  B.  665.      In  Grant  «.  Nor-  made  directly   to  the   assignee,  in 

way,  a  bill  of  lading  was  issued  by  a  Armour  v.  Railroad  Co.,  infra,  was 

master  of  a  ship  for  goods  never  re-  considered    as    distinguishing    the 

ceived,  and  was  pledged  as  collateral  case  from  Grant  «.  Norway,  where 

security  for  a  bill  of  exchange  on  the  assignee    simply  acquired    the 

the  consignees  discounted  by   the  title  of  the  fraudulent  consignee.  In 

money  lender,  in  good  faith,  and  such  case,  the  assignee  of  a  chose  in 

without    notice.      Payment  of  the  action  takes  no  better  title  than  that 

bills  being  refused,  the  pledgee  sued  of  the  person  from  whom  he  buys, 

the  shipowner.     No  recovery,  how-  Griswold  ».  Haven,  25  N.  Y.  604, 

ever,   was  allowed,   as  any  person  606. 
taking  a  bill  of   lading,  even  for 


THB   PLEDGEE   AND   THE   CARRIER.  521 

representations  stated  in  the  bill  of  lading,  without  notice 
of  equities,  the  carrier  is  not  permitted  to  set  up  any  fraud 
of  the  shipper,  or  the  non-delivery  of  the  goods,  or  even 
forgery  in  the  original  transaction,  where  the  bill  of  lading 
is  not  itself  tainted  with  forgery.  The  decisions  are  founded 
upon  the  rule  of  estoppel  by  conduct,  applied  as  well  to 
corporations  as  individuals,  that  where  one  of  two  innocent 
persons  must  suffer  by  the  fraud  or  deceit  of  a  third,  the 
loss  should  fall  upon  the  one  who  has  enabled  the  third 
person  to  commit  the  fraud  or  deceit.1 

The  rule  was  applied  in  a  case  in  New  York  where  an 
agent  of  a  railroad  company  issued  two  bills  of  lading  deliv- 
erable to  the  order  of  A,  the  consignee,  the  agent  being 
informed  at  the  time  of  delivery,  that  it  was  the  intention  of 
the  person  to  use  them  at  a  bank.  This  was  done,  a  bank  ad- 
vancing money  to  the  shipper,  upon  discount  of  drafts  drawn 
upon  the  consignee,  the  bills  of  lading  being  attached.  Upon 
presentation  to  the  consignees,  the  drafts  were  paid  upon 
the  faith  and  credit  that  the  property  had  been  shipped  as 
stated  in  the  bills  of  lading.  In  fact,  no  goods  had  been 
delivered  at  the  time  of  issuing  the  bills  of  lading,  although 
a  warehouse  receipt  for  them  was  handed  to  the  agent.  The 
warehouse  receipt,  however,  was  a  forgery,  and  the  shipper 
had  no  property  such  as  was  pretended  to  be  specified  by 
such  receipt.  The  act  of  the  agent  in  issuing  the  bills  of 
lading,  being  within  his  apparent  authority,  the  railroad 
company  were  estopped  as  against  an  innocent  person 
advancing  value  on  the  credit  of  the  representations  con- 
tained in  the  bill,  to  set  up  the  fraud,  and  the  plaintiffs,  the 
consignees,  were  allowed  to  recover.*  In  another,  and 
later  case,  a  bill  of  lading  was  issued  by  a  railroad  agent, 
stating  that  the  goods  described  were  shipped  by  A,  and 

'Hem    1).  Nichols,  1   Salk.  289;  Ib.  189;    Sioux  City  Bank  c.  First 

Savings  Bank  ».  Railroad   Co.  20  Nat.  Bank,  10  Neb.  556. 

Kan  529;  Armour  v.  Mich.  Cen.  R.  8  Armour  v.  Michigan  Cen.  R.  R. 

R.  Co.  65  N.  Y.  Ill;  Farmers'   and  Co.  65  N.  Y.  111. 
Mechanics'  Bank  v.  Erie  Ry.  Co.  72 


522         QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

were  to  be  delivered  to  the  order  of  a  bank,  the  plaintiff. 
Upon  presentation  of  the  bill  of  lading,  the  bank  advanced 
money  thereon  in  good  faith,  and  upon  the  arrival  of  the 
goods  at  their  destination,  caused  their  sale,  and  re-imbursed 
itself  for  its  advances.  It  appeared  that  the  property  was 
not  owned  by  A,  but  by  B,  who  had  already  obtained  a 
loan  upon  the  credit  of  the  goods,  before  A  obtained  posses- 
sion of  them,  and  misappropriated  them.  The  first  pledgee 
recovered  the  value  of  the  property  from  the  second  pledgee,1 
who  then  brought  an  action  against  the  railroad  company. 
Applying  the  rule  that  a  company  is  responsible  for  the 
wrongful  torts  and  negligence  of  its  agents,  the  railroad 
company  was  required  to  pay  the  pledgee  the  full  value  of 
the  property,  as  the  agent  was  chargeable  with  ^knowledge 
that  A  was  not  the  owner  of,  nor  a  purchaser  of  the  goods.* 


§  391.  THE  LIKE  RULE  APPLIED  IN  KANSAS  AND 
NEBRASKA.  —  The  rules  of  equitable  estoppel  were  also 
enforced  as  against  a  railroad  company  in  favor  of  a  bona 
fide  pledgee  for  value,  without  notice,  in  a  case  in  Kansas, 
where  an  agent,  having  authority  to  issue  bills  of  lading, 
was  induced  by  fraudulent  statements  of  the  consignor  to 
issue  first  one,  and  then  a  second  bill  of  lading,  both  pur- 
porting to  be  originals.  One  of  the  bills  was  sold  to  a  bona 
fide  purchaser  for  value,  who  subsequently  obtained  the 
goods.  The  other,  issued  shortly  afterwards,  was  deposited 
as  collateral  security  with  a  bank  for  an  advance  of  money 
made  upon  the  faith  of  the  representations  contained  in  the 
bill  of  lading,  in  good  faith,  and  without  notice.  Evidence 
was  given  to  show  a  custom  of  railroads  to  issue  but  one 
bill  of  lading,  and  the  bill  offered  as  collateral  security  pur- 
porting to  be  an  original,  the  carrier  was  estopped  to  dispute 
its  terms  as  to  the  receipt  of  the  property.  The  pledgee  was 


1  Manufacturers'    Bank  v.  Farm-         *  Fanners'  Bank    c.  Erie  Ry.  Co. 
era'  Bank,  60  N.  Y.  40.  72,  N.  Y.  189. 


THE   PLEDGEE   AND   THE   CARRIER.  523 

allowed  to  recover  from  the  railroad  company  the  amount  of 
his  advances.1 

In  another  case,  in  Nebraska,  where  bills  of  lading  were 
issued  by  an  agent  of  a  railroad  company,  for  several  car- 
loads of  grain  which  were  never  shipped,  and  the  bills,  with 
other  bills  for  actual  shipments,  were  attached  as  collateral 
security  for  the  payment  of  drafts  discounted  by  a  bank 
for  the  full  value  of  such  supposed  shipments,  and  forwarded 
for  payment.  The  drafts  being  protested,  and  the  shipper 
having  absconded  leaving  no  property,  the  railroad  company 
was  estopped  to  deny  the  representations  on  the  bills  of 
lading,  made  by  its  authorized  agent,  as  against  a  bona  fide 
pledgee,  holding  the  same  for  value  advanced  upon  the 
credit  of  such  representations,  and  without  notice  of  the 
fraud  or  other  equities.8 

§  392.  THE  BILL  OF  LADING,  AS  A  RECEIPT,  OPEN  TO 
EXPLANATION. — A  bill  of  lading  is  both  a  contract  and  a 
receipt.  As  a  contract,  it  is  an  agreement  safely  to  carry 
the  property  ;  as  a  receipt,  it  is  a  representation  that  the 
goods  have  been  received,  and  of  their  apparent  condition.8 
If  the  shipment  be  made  by  vessel,  and  as  usual  in  such 
cases  the  bill  of  lading  is  issued  in  a  set  of  three,  one  being 
retained  by  the  shipmaster,  the  actual  contract,  in 
case  of  dispute,  is  gathered  from  the  bills  of  lading  delivered 
by  the  shipmaster  to  the  consignor.  The  ship's  bill  is 
designed  only  for  the  information  and  convenience  of  the 
master ;  and  not  for  evidence  between  the  parties  of  what 
the  agreement  is.  Should  it  differ  from  the  others,  the 
latter  are  considered  as  the  true  and  only  evidence  of  the 
contract.4  So  far  as  a  bill  of  lading  is  a  receipt,  and  as  be- 
tween the  original  parties,  it  is  always  open  to  explanation, 

1  Wichita  Savings    Bank  v.  Rail-  3  Pollard  v.  Vinlon,  105  U.  S.  3,  8; 

road  Co.  20  Kan.  529.  Relyea  v.  N.  H.  Rolling  Mill  Co.  42 

9  Sioux  City  Nat.  Bank  v.   First  Conn.  577. 

Nat.  Bank,  10  Neb.  556.  4  The  Thames,  14  Wall.  98. 


524          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

and  any  mistake  or  fraud  in  the  statement  of  the  goods 
shipped  may  be  shown  by  parol  proof.1 

In  England,  under  the  act  now  in  force,  the  statements 
contained  in  bills  of  lading  relating  to  the  goods  are  con- 
clusive evidence  of  such  shipments,  where  the  bill  is  in  the 
hands  of  a  consignee  or  indorsee  for  valuable  consideration, 
unless  the  holder  of  the  bill  has  actual  notice,  at  the  time  of 
receiving  the  same  that  the  goods  had  not  been  in  fact  laden 
on  board,  or  that  such  misrepresentation  is  caused  with- 
out default  on  the  part  of  the  shipmaster,  and  wholly  by  the 
fraud  of  the  shipper,  or  of  the  holder,-  or  some  person  under 
whom  the  holder  claims.  But  even  under  this  act  it  may  be 
shown  that  the  cargo  actually  received  differs  in  weight 
from  that  signed  for  in  the  bill  of  lading,  where  .the  weight 
mentioned  is  mere  matter  of  measurement.9 

§  393. — ESTOPPEL  OF  CARRIER  TO  EXPLAIN  RECEIPT,  AS 
AGAINST  BONA  FIDE  PLEDGEE  FOR  VALUE. — The  rule  per- 
mitting an  explanation  of  so  much  of  a  bill  of  lading  as  is  a 
receipt  is  not  enforced  as  against  a  consignee,  who  is  not  a 
party  to  the  contract,  nor  an  indorsee  of  a  bill  of  lading, 
holding  the  same  in  good  faith  as  collateral  security  for  an 
advance  made  upon  the  faith  of  the  representations  on  the 
the  face  of  the  bill.  The  shipowner  or  inland  transporta- 
tion company  is  estopped  to  deny  the  truth  of  the  state- 
ments in  the  bill  of  lading  to  which  credit  has  been  given, 

1  Scars  v.  Wingate.  3  Allen,  103  ;  Sprague's  Dec.  309 ;  Schooner  Free- 
Portland  Bank  v.  Stubbs.  6  Mass,  man  v.  Buckingham,  18  How.  182; 
422;  Ellis  P.  Willard,  9  N.  Y.  529;  Pollard  v.  Vinton.  105  U.  S.  3; 
Meyer  ®.  Peck,  28  Ib.  590 ;  Dicker-  Berkeley  v.  Watling,  7  Ad.  &  E. 
son  v.  Seelye,  12  Barb.  102;  Hunt  v.  29  ;  Howard  v.  Tucker,  1  B.  &  Ad. 
Mississippi  Central  Ry.  Co.  29  La.  712. 

Ann.  446 ;   O'Brien  v.  Gilchrist,  34  »  Bills  of  Lading  Act,  18  and  19  . 

Me.  554;  Dean  v.  King,  22  Ohio  St.  Viet.  c.  Ill,  s.  3;  Blanchett  v.  Pow- 

118 ;  Relyea  v.  N.  H.  Rolling  Mill  ell's  Co.  L.  R.  9  Ex.  74;  McLean  «. 

Co.  42  Conn.  577 ;  Bates  v.  Todd,  1  Fleming,   L.   K.  2   H.  L.  Sc.  128 ; 

M.  &   Rob.  106 ;  In   re   Brown,  1  Brown  v.  Powell  Coal  Co.  L.  R.  10 

Biss.   76;    Bradstreet    v.  Heran,   2  C.  P.  562  ;  Carr  v.  London  &  N.  W. 

Blatchf,   116 ;    Button   v.    Kettoll.  Ry.  Co.  L.  R.  10  C.  P.  307. 


THE  PLEDGEE  AND   THE  CARRIER.  525 

so  far  as  such  matters  are  or  ought  to  be  within  the  knowl- 
edge of  the  officers  issuing  such  bills  of  lading.1  The  issue 
of  a  bill  of  lading  acknowledging  the  receipt  of  a  certain 
quantity  of  merchandise,  enables  the  shipper  to  go  upon  the 
market  and  obtain  money,  either  upon  the  deposit  of  such 
bills  of  lading  as  collateral  security  for  an  advance,  or  as  the 
purchase  price  of  the  property  purporting  to  be  represented 
thereby.  As  against  a  bona  fide  pledgee,  for  money  ad- 
vanced, in  the  usual  course  of  business,  and  without  notice, 
the  want  of  care  of  the  shipmaster  or  carrier  in  issuing  a  re- 
ceipt in  such  bill  of  lading  for  an  amount  of  goods  exceeding 
that  actually  received,  forms  no  defense  to  an  action  for 
the  wrong.9 

The  rule  mentioned  as  to  the  limitations  to  which  explan- 
ations by  a  carrier  of  statements  contained  in  his  bill  of 
lading  are  subject,  was  enforced  in  another  case,  where  the 
owner  and  master  of  a  vessel  signed  a  bill  of  lading  for  a 
certain  quantity  of  iron,  upon  a  representation  of  the 
shippers  that  the  weight  was  correct.  The  bill  of  lading 
was  attached  to  a  draft,  and  both  sent  to  the  consignees, 
who  remitted  the  amount  of  the  bill  after  the  arrival  of  the 
ship,  but  before  the  cargo  was  discharged.  It  was  found 
afterwards  that  the  iron  was  short  several  tons  of  the 
amount  called  for,  and  payment  of  freight  was  refused. 
The  owner  of  the  ship  was  estopped  by  his  representations 
in  the  bill  of  lading,  and  in  a  suit  for  the  freight  the  con- 
signees were  allowed  to  set  off  the  amount  of  their  loss,  not 
exceeding  the  aggregate  of  .their  particular  claim.  The  terms 
of  the  bill  of  lading  were  not  open  to  explanation  as  against 
a  deceived  consignee,- as  it  was  the  duty  of  the  master  to 
ascertain  the  true  weight,  or  to  refuse  to  sign  a  clear  bill  of 

1  Dickerson   v.    Seelye,    12  Barb,  ing  Mill   Co.  supra ;  Bradstreet  «. 

102;  Sears  a.Wingate,  3  Allen,  103;  Heran,  2  Blatchf.  116.     And  an  ac- 

Dows  v.  Perrin,  16  N.  Y.  325;  Meyer  lion  against  the  master  issuing  such 

v.  Peck,  28  Ib.  590;  Bates  v.  Todd,  receipt  may  be  maintained.    Tindall 

1.  M.  &  Rob.  106;  Dean  v.  King  22  v.  Taylor,  4  El.  &  BL  210. 
Ohio  St.  118;  Relyea  «.  K  H.  Roll-         »  Meyer  v.  Peck,  28  K  Y.  590 


526          QUASI-NEGOTIABLE   COLLATERAL,   SECURITIES. 

lading,  and  he  knew  or  had  the  means  of  knowing  the  state- 
ments were  false.1 


§  394. — THE  PLEDGEE'S  BIGHTS  AGAINST  CARRIER  FOR 
NON-DELIVERY. — A  bill  of  lading  although  not  possessing  all 
the  attributes  of  a  negotiable  instrument,  is  a  representative 
of  the  property  described  therein,  and  its  delivery  to  a 
pledgee,  upon  a  bona  fide  advance,  in  the  usual  course  of 
business,  places  such  property  under  his  control,  to  the  same 
extent  as  if  the  same  were  actually  delivered.  Holding  the 
legal  title  and  right  of  possession,  the  pledgee  of  a  bill  of 
lading  by  indorsement  and  delivery,  where  indorsement  is 
required,  or  by  delivery,  is  entitled  to  bring  an  action  in  his 
own  name  against  a  carrier,  who  has  undertaken  the  car- 
riage of  such  property,  for  non-delivery,  in  whole  or  in  part, 
or  for  loss  or  damage  to  the  goods,or  for  delivery  with- 
out the  production  of  the  bill  of  lading,  or  any  other  action 
based  upon  the  right  of  possession.*  Where  there  has  been 
a  total  non-delivery  of  the  property,  the  pledgee  of  the  bill 
of  lading  may  sue  the  carrier  in  an  action  of  trover  for  a 
wrongful  conversion,  after  a  proper  demand  for  the  goods.1 
A  bill  of  lading  remains  in  full  force  until  the  engagement 
of  the  carrier  has  been  completely  fulfilled  by  a  delivery  of 
the  property  to  some  person,  having  the  right  to  claim 


1  Relyea  v.  N.  H.  Rolling  Mill  Co.  N.    Y.    373  ;    First    Nat.    Bank  <o. 

42  Conn.  577  ;  Bradstreet  v.  Heran,  Northern  Ry.  Co.  58  N.  H.  203. 
2  Blatclif.  116;  Scars  v.  Wingate,  3          'Maguire  v.  Dinsmore,  70  N.  Y. 

Allen,  103.  410;  Viner  v.  N.  Y.  etc.  Ry.  Co,  50 

*  Robinson  v.  Memphis  etc.  Ry.  Ib.  23  ;  Hawkins  v.  Hoffman,  6  Hill, 

Co.  9  Fed.  Rep.  129.  141;  s.c.  16  Ib.  586;  Wright  v.  Northern  Cent.  Ry. 

57;  The  Thames,  14  Wall.  98;  s.  c.  Co.  8  Phila.  19;  Winslow  v.  Vermont 

7  Blatchf.  226  ;   The   Vaughan,  14  Ry.  Co.  42  Vt.  700 ;  Forbes  v.  Boston 

Wall.  258;  Pollard  v.  Vinton,  105  &  L.  Ry,   Co.   13:i  Muss.   154,  158; 

U.  S.  7 ;  Forbes  v  Boston  &  L.  Ry.  Rosetifield  v.  Express  Co.  1  Woods, 

Co.   133   Mass.   154;    Newcomb  0.  131;    The    Thames,    14   Wall.    98; 

Boston  etc.  Ry.  Co.  115  Mass.  230;  Southern  Exp.  Co.  v.  Dickson,  94 

Merchants'  Bank  v.  Miss.  R.  Co.  69  U.  S.  549. 


THE   PLEDGEE   AND   THE   CARRIER.  527 

delivery  and  possession.1  Where  bills  of  lading  issued  by 
the  shipmaster  state  that  the  goods  are  shipped  by  a  certain 
firm,  to  be  delivered  "  to  order  or  assigns,"  delivery  to  any 
one  who  has  not  the  order  of  the  shipper  is  not  a  good  de- 
livery.8 A  custom,  however,  was  allowed  to  be  proved, 
where  railroad  companies  issued  bills  of  lading  deliverable 
to  a  named  person,  and  not  "  to  order,  or  assigns,"  to  deliver 
the  goods  to  the  consignee  without  production  of  the  bill  of 
lading,  but  merely  upon  the  direction  of  the  way-bill.  A 
bill  of  lading,  thus  worded,  was  pledged  upon  an  advance, 
made  in  good  faith,  but  upon  demand  for  the  goods,  it  was 
found  the  company  had  already  delivered  them  to  the  person 
named  in  the  way-bill.  The  pledgee's  action  of  trover 
against  the  company,  in  view  of  the  custom  proved,  was  not 
sustained.1 

Where  valid  legal  process  has  been  issued  from  a  court 
having  jurisdiction  of  the  carrier,  demanding  delivery  of 
property  in  its  possession,  a  delivery  to  the  officer  who 
presents  the  writ,  operates  as  a  discharge  of  the  carrier, 
provided  immediate  or  at  least  reasonable  notice  of  the  at- 
tachment or  execution  is  given  to  the  consignee  or  other 
person  entitled  to  delivery.4  Carriers,  or  their  agents  are 
required  to  act  in  good  faith,  for  if  there  be  any  collusion  or 
fraud,  they  are  bound  to  establish  the  title  of  the  adverse 
claimant  to  be  better  than  that  of  the  pledgee  or  other 
holder  for  value  of  the  bill  of  lading.  Money  was  advanced 
in  good  faith  by  a  consignee  upon  a  bill  of  lading  forwarded 
to  him,  but  after  delivery  of  the  goods  to  the  carrier,  and 
when  about  to  be  shipped,  a  claimant,  under  an  order 

1  Barber  v.  Mcyerstein,  L.  R.  2  C.  Co.  16  Fed.  Rep.  57;  Stiles  v.  Davis, 

P.  38  (Willes  and  Keating  J.  J),  s.  1  Black.  101 ;  Rosenfield  v.  Express 

c.  L.  R.  4  H.  L.  332  (Hatherley,  Lord  Co.  1  Woods,  131 ;  Burton  v.  Wil- 

Chan.);  Glyu  v.  E.  &  W.  India  kinson,  18  Vt.  187;  Ohio  &  Miss, 

Docks  Co.  L.  R.  7  App.  690.  R.R.  Co.  v.  Yohe,  51  Ind.  181  ; 

8  The  Thames,  14  Wall.  93.  Bliven  v.  Hudson  River  R.   Co.  36 

8  Forbes  v.  Boston  &  L.  Ry.  Co.  N.  Y.  403;  Kiff  ».  Old  Colony  R.R. 

133  Mass.  154.  Co.  117  Mass.  591. 

4  Robinson  v.  Memphis  &  C.  Ry. 


528          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

from  the  consignor  who  had  fraudulently  re-assigned  the 
property  as  security  for  an  overdrawn  account,  demanded 
the  goods.  The  agent  refused  to  deliver,  but  acting  upon 
a  promise  made  to  such  claimant,  delayed  shipment  until 
legal  process  could  be  served.  The  consignee  recovered 
from  the  carrier  the  value  of  the  property  thus  illegal!}?-  de- 
tained, to  the  full  amount  of  his  advances.1 

§  395.  NOTICE  TO  CARRIER  WHEN  REQUIRED  OF 
PLEDGEE. — A  pledgee  for  value  of  a  bill  of  lading,  holding 
the  legal  title  to  the  property  as  though  an  actual  delivery 
had  been  made,  is  not  bound  by  any  strict  rules  of  notice  of 
his  interest  or  claim  to  carriers,  or  other  persons  dealing 
with  the  goods  ;  nor  is  he  required  upon  the  arrival  of  the 
goods  at  their  destination  to  proceed  immediately  to  take 
possession  of  the  same.  It  is  no  excuse  for  a  wroug  deliv- 
ery by  a  carrier  that  the  pledgee  of  a  bill  of  lading,  holding 
under  indorsement,  is  unknown  to  the  carrier,  and  that  no- 
tice of  the  arrival  of  the  goods  cannot  apparently  be  sent  to 
him.  If,  after  diligent  inquiry,  such  pledgee  and  indorsee 
cannot  be  found,  then  the  carrier  is  required  to  hold  the 
goods  until  claimed,  or  to  store  them  for  their  owner.  Deliv- 
ery to  a  stranger  under  any  circumstances  is  not  a  dis- 
charge of  the  carrier.1  Nor  is  a  pledgee  for  value  of  a  bill 
of  lading,  indorsed  and  delivered,  required  to  give  notice  to 
any  warehouseman  or  wharfinger  to  whom  the  property  rep- 
resented by  such  bill,  has  been  delivered,  under  a  stop  for 
freight.  He  is  under  no  obligation  to  give  notice  to  any- 
one.8 A  delay  of  nearly  two  months  by  a  pledgee  for  value 
of  a  bill  of  lading,  indorsed  and  delivered,  in  giving  notice 
of  his  interest  and  claiming  possession  of  the  goods,  will  not 
constitute  laches  so  as  to  defeat  his  legal  title,  although  in 

IRobinsonc.R.R.Co.,16Fei1.R.57.  568;   Barber  v.  Meyerstein,  L.  R.  4 

»  The  Thames,  14  Wall.  98;  Forbes  H.  L.  317  ;  Glyn  v.  E.  &  W.   India 

t>.  Boston  &  L.  Ry,  Co,  133  Mass.  Docks  Co.  L.  R.  7  App.  635. 

154;  s.  c.  9  Am.  &  E.  R.  R.  C:is.  76;  «  Barber  v.  Meyerstein,  L.  R.  4  II. 

Farmer's  Bank  c.  Logan,  74  N.  Y.  L.  337  (Westbury,  Lord  Chan). 


THE  PLEDGEE  AND   THE  CARRIER.  529 

the  meantime  the  consignee  who  had  pledged  the  bill  of  lad- 
ing, obtained  the  goods  from  the  carrier,  upon  the  false  rep- 
resentation that  he  held  the  bill  of  lading,  and  shipped  them 
abroad.  The  pledgee  was  allowed  to  recover  from  the  car- 
rier the  market  value  of  the  goods  at  the  time  of  the  conver- 
sion, less  the  freight,  with  interest.1- 

A  bona  fide  pledgee,  advancing  money  upon  the  indorse- 
ment and  delivery  of  a  bill  of  lading  which  shows  upon  its 
face  that  it  is  issued  in  a  set  of  bills  of  more  parts  than  one 
should  require  all  the  bills  of  the  set  except  the  shipmaster's 
.  bill,  to  be  produced,  indorsed  and  delivered,  before  making 
an  advance,  for  the  reason  that  other  of  the  series  may  al- 
ready have  been  indorsed  and  delivered  for  value  advanced 
in  good  faith.  Possession  of  two  of  a  set  of  three  bills  of 
lading,  being  the  first  and  second,  was  considered  sufficient 
in  the  leading  cases  of  The  Thames  and  Barber  v.  Meyer- 
stein,  the  fraud  being  committed  in  each  case  by  the  use  of  the 
third  or  shipmaster's  bill  as  collateral  security  for  advances. 
Where  money  is  advanced  upon  one  only  of  a  set  of  three 
bills  of  lading  it  is  advisable  for  the  pledgee  to  be  on  the 
alert  so  that  he  may  give  notice  of  his  claims  to  the  shipmas- 
ter upon  the  arrival  of  the  vessel.*  The  pledgee  holding 
indorsed  the  "first"  only  of  a  set  of  three  bills  of  lading 
upon  a  bona  fide  advance  to  the  consignee,  "  one  of  which 
bills  being  accomplished,  the  others  to  stand  void,"  is  not 
entitled,  under  the  latest  decision  of  the  English  House  of 
Lords,  to  recover  any  damages  from  the  shipowner  or  wharf- 
inger where,  before  notice  of  his  claims,  or  any  knowledge 
of  the  negotiation  for  value  of  other  bills  of  the  set,  a  bona 
fide  delivery  of  the  property  is  made  upon  the  "second" 
bill,  presented  by  the  consignee,  unindorsed,  the  property 
being  deliverable  by  the  bills  of  lading  to  him  "  or  assigns."* 

1  Forbes  v.  Boston  &  L.  Ry.  Co.  L.  R.  6  Q.  B.  D.  504 ;  s.  c.  L.  R.  7 

133  Mass.  154.  App.  600.  612,  615;  Meyerstein  v. 

9  Glyn  t>.  E.  &  W.  India  Docks  Co.  Barber,  L.  R.  4  H.  L.  317  (Lord 

L.  R.  7  App.  600,  605.  Westbury).  Criticising  earlier  cases, 

*  Glyn  v.  E.  &  W.  India  Docks  Co.  in  which,  notwithstanding  notice  to 
34 


530          QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

The  rule  announced,  however,  is  declared,  in  a  later  case, 
not  to  limit  the  recognized  effect,  as  against  all  parties,  ex- 
cept the  shipowner,  acting  in  good  faith,  of  an  indorsement 
of  a  bill  of  lading  to  a  holder  for  value,  without  notice.1 

§  396.  THE  PLEDGEE  OF  THE  FIRST  INDORSED  OF  BILLS 
PREFERRED. — The  utility  of  continuing  the  usage  of  issuing 
bills  of  lading  in  sets  of  three  or  more,  which  had  its  partic- 
ular value  before  electricity,  giving  almost  instant  com- 
munication with  all  parts  of  the  world,  was  utilized,  is  ques- 
tionable. Much  litigation  would  be  avoided,  and  fraudulent 
dealings  prevented,  if  only  one  bill  of  lading  should  be'used, 
nor  would  the  interests  of  commerce  be  restricted  thereby.4 
As  between  two  bona  fide  pledgees  each  receiving  a  bill  of 
lading  of  the  set  of  three,  "one  of  the  bills  being  accom- 
plished, the  others  to  stand  void,"  the  third  being  retained 
by  the  shipmaster  as  the  "ship's  bill,"  the  pledgee  who  is 
first  in  time  in  receiving  one  of  the  set  properly  indorsed, 

the  shipmaster  of  the  true  title,  he  ing  the  title  of  the  indorsee  to  full 

was  allowed,  in  case  of  dispute  be-  possession  thereof,  the  bill  of  lad- 

tween  rival  claimants,  to  deliver  to  ing,  until  complete  delivery  of  the 

the  one  he  thought  entitled,  and  by  cargo  has  been   made  on  shore  to 

this   would   be    fully    discharged,  some  one  rightfully  claiming  under 

Fearon  v.  Bowers,  1  H.  Bl.  364  ;  s.  c.  it,  remains  in  force  as  a  symbol, 

1  Sm.  L.  Cas.  8th  Ed.  782 ;  Lickbar-  and  carries  with  it  not  only  the  full 

row  v.  Mason,  1  II.  Bl.   357;  The  ownership  of  the  goods,  but  also  all 

Tigress,  Br.  and  L.  Adm.  38  ;  32  L.  rights  created    by  the  contract  of 

J.  (P.  and  A.)  97.  carriage  between  the  shipper  and 

1  Sanders  v.   Maclean,    L.   R.   11  the  shipowner.     It  is  a  key  which  in 

Q.  B.  D.  327.    As  said  by  the  Court  the  hands  of  a  rightful  owner  is  in- 

of  Appeal:     "The  property  in  the  tended  to  unlock  the  door  of  the 

goods    passes  by  the    indorsement  warehouse,    floating    or    fixed,    in 

and  delivery  of  the  bill  of  lading,  which  the  goods  may  chance  to  be." 

whenever  it  is  the  intention  of  the  (Bowen,  L.  J.) 

parties   that   the    property  should  *  Glyn,  Mills  &  Co.   v.  E.   &  W. 

pass,  just  as  under  similar  circum-  India  Docks  Co.  L.  R.  7  App.  605 

stances,  the  property  would  pass  by  (Earl  Cairns  and  Lord  Blackburn) ; 

an    actual   delivery    of    the  goods.  Sanders  v.  Maclean,  L.  R.  11  Q.  B. 

And  for  the  purpose  of  passing  such  D.  327. 
property  in  the  goods  and  complet- 


THE   PLEDGEE   AND   THE   CARRIER.  531 

and  upon  a  valuable  advance,  is  preferred,  although  the 
pledgee  receiving  the  second  of  the  series  has  advanced  value 
thereon,  in  good  faith,  without  notice  of  the  previous  hy- 
pothecation.1 Nor  is  the  pledgee  who  is  prior  in  time,  hav- 
ing both  the  right  of  property  and  possession  required  to 
give  notice  to  the  shipowner  of  his  title  and  right  to  posses- 
sion, but  may,  if  the  goods  are  obtained  and  sold  upon  an- 
other of  the  set  of  bills  of  lading  negotiated  subsequently  to 
his  own,  bring  an  action  against  the  second  pledgee,  either 
for  the  proceeds  of  the  goods  as  for  money  had  and  received 
for  his  use,  waiving  the  tort,  or  for  a  wrongful  conversion.5 
The  tender  of  one  of  a  set  of  three  bills  of  lading,  duly  in- 
dorsed, is  an  effectual  tender  of  the  goods,  although  the 
others  be  not  produced.  Where,  by  the  terms  of  the  con- 
tract, pa3rment  is  to  be  made  of  bills  of  exchange  upon  de- 
livery of  bills  of  lading  attached  as  collateral  security,  upon 
presentation,  the  purchaser  who  refuses  to  accept  and  pay, 
upon  the  presentation  of  a  duly  indorsed  bill  of  lading,  does 
so  at  his  own  risk  as  to  whether  it  may  turn  out  to  be  the 
fact  or  not  that  the  bill  of  lading  tendered  was  an  effectual 
one,  or  whether  therewas  another  of  the  set  which  had  been 
so  dealt  with  as  to  defeat  the  title  of  the  purchaser  as 
indorsee  of  the  one  tendered.8 

1  Barber  v.  Meyerstein,  L.  R.  4  H.  fusing  to  sustain  an  action  of  trover 
L.  337;  The  Thames,  14  Wall.  98.  by  a  pledgee  of  the  "first"  of  a  set 
In  which  cases  the  respective  pled-  of  bills  of  lading  as  against  a  ship- 
gees  received  two  of  the  set  of  three  owner  or  wharfinger  delivering  to 
bills  of  lading,  believing  the  "ship's  the  consignee  on  the  "second,"  un- 
bill  "  to  be  in  possession  of  the  indorsed,  say  (Blackburn,  Lord)  that 
master,  but  delivery  was  in  fact  ob-  "  so  far  as  the  decision  in  Barber  v. 
tained  upon  the  third  bill.  The  first  Meyerstein  extends,  the  law  must  be 
two  of  the  set  were  delivered  in  taken  to  be  settled,"  and  another 
Skilling  v.  Bollman,  73  Mo.  665;  but  law  lord  (Fitzgerald)  said  there  was 
one  was  stolen  by  a  partner  of  the  no  intention  "to  modify  or  depart 
firm,  and  negotiated,  and  the  contest  from  "  the  decision  mentioned, 
was  as  to  priority.  The  court  ap-  *  Barber  v.  Meyerstein,  and  The 
proves  the  rule  of  Meyerstein  v.  Thames,  supra. 
Barber.  In  Glyn  v.  E.  &  W.  India  8  Sanders  v.  Maclean,  L.  R.  11  Q. 
Docks  Co.  L.  R.  7  App.  605,  the  B.  D.  327.  In  the  Court  of  Appeal 
English  House  of  Lords,  while  re-  of  the  Queen's  Bench  (Bowen,  L. 


QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 


CHAPTER  XLIX. 

THE  PLEDGEE'S  RIGHTS,  UNDER  ESTOPPEL. 

§397.  Estoppel  as  applied  to  bills  of  lading  negotiable  or  quasi-negotiable, 

398.  Estoppel  of  owner,  where  third  person  holds  bill  indorsed. 

399.  The  pledge  of  void  or  fraudulent  bills  of  lading. 

400.  Application  of  estoppel  as  between  successive  pledgees. 

401.  The  pledge  of  bills  of  lading  upon  unauthorized  shipments. 

402.  And  where  pledgee  has  notice  of  prior  equities. 

403.  The  pledgee's  claims,  subject  to  terms  of  bill  of  lading.  " 

404.  The  pledgee's  remedies  for  misappropriation  of  property. 

405.  The  unpaid  vendor's  right  of  stoppage  in  transitu. 

406.  The  pledgee  a  holder  for  value,  as  against  unpaid  vendor. 

§  397. — ESTOPPEL  AS  APPLIED  TO  BILLS  OF  LADING  NE- 
GOTIABLE, OR  QUASI -NEGOTIABLE. — In  countries  and  states 
where  bills  of  lading  are  made  negotiable  by  statute,  they 
are  in  the  hands  of  third  persons  loaning  money  upon  them 
in  good  faith,  without  notice,  as  free  of  antecedent  equities 
as  bills  of  exchange  or  negotiable  promissory  notes. 
The  holder  of  an  indorsed  bill  of  lading,  where  negotiable, 
may,  in  the  course  of  commercial  dealing,  transfer  a  greater 
right  than  he  himself  has,  the  exception  being  founded  on 
the  negotiable  character  of  the  document.  It  is  confined  to  the 
cases  where  the  person  who  transfers  the  right  is  himself  in 

J.),  referring  to  the  rule  that  the  themselves,   and  one    upon  which 

first  indorsee  of  bills  is  entitled  to  they  probably  would  be  guided  by 

the  property,  as  against  everybody  their  faith  in  or  distrust  of  their 

but  the  shipowner,  said:    "People  customer.    But  I  do  not  believe  that 

who  lend  money  upon  or  who  pur-  such  suspicion,  when  it  exists,  is  the 

chase  bills  of  lading  can  make  their  natural  or  necessary  consequence  of 

own    terms.      Whether    they   will  the    presentation    of  the  two  bills 

trust  to  the  current  bills  of  lading  without  the  third." 
produced  in  any  case  is  a  matter  for 


THE  PLEDGEE,   UNDER   ESTOPPEL.  533 

actual  and  authorized  possession  of  the  document,  and  the 
transferee  gives  value  on  the  face  of  it,  without  having 
notice  of  any  circumstances  which  would  render  the  trans- 
action neither  fair  nor  honest.  In  such  case,  one  of  two 
innocent  parties  must  suffer  by  the  act  of  a  third ;  and  it  is 
reasonable  that  he  who,  by  misplaced  confidence,  has  ena- 
bled such  third  person  to  occasion  the  loss,  should  sustain 
it.1  The  rules  of  equitable  estoppel  are  applied  in  favor  of 
pledgees  of  bills  of  lading  indorsed  who  have  advanced 
money  on  bills  sent  by  the  vendor  to  the  vendee  and  con- 
signee, as  against  the  right  of  stoppage  in  transitu  of  the 
unpaid  vendor,  if  at  the  time  of  making  the  advance  the 
pledgee  is  without  notice  of  any  cause  upon  which  such 
right  might  arise.8 

The  rules  of  equitable  estoppel  are  applied  in  cases 
where  bills  of  lading,  while  not  negotiable,  are  quasi- 
negotiable,  under  indorsement  for  value.  A  transfer  of 
a  bill  of  lading,  by  indorsement  where  required  or  by 
delivery,  vests  the  legal  title  to  the  property  and  the  right 
to  possession  in  a  pledgee  for  value  advanced  in  good  faith, 
without  notice  of  equities.  The  pledgee  may  rely  upon  the 
possession  and  apparent  ownership  of  a  holder  of  a  bill  of 
lading,  where  the  same  is  received  in  the  usual  course  of 
business.  As  where  a  vendor  has  allowed  a  vendee  to  assume 
possession  and  apparent  ownership  of  bills  of  lading,  so  as  to 
be  able  to  deal  with  thorn  as  his  own,  third  persons  may  rely 
upon  such  possession  and  apparent  ownership  of  the  indicia 
of  title.  The  vendor  is  estopped  to  dispute  such  title  as 
against  persons  innocently  making  advances  in  the  belief 
that  the  apparent  title  is  the  real  title  and  the  ownership 


1  Rodger  v.  Comptoir  D'Escompte,  In  re  Westzintlms,  5  B.  &  Ad. 

L.  R  2  Pr.  C.  393,  405  (Sir  Joseph  817;  Berndtson  v.  Strang,  L.  R.  4 

Napier);  The  Argentina,  L.  R.  1  A.  Eq.  486;  on  app.  L.  R.  4  Ch.  588; 

and  E.  370 ;  Gurney  ».  Behrend,  3  Coventry  v.  Gladstone,  L.  R.  6  Eq. 

El.  and  Bl.  622;  Lickbarrow  v.  44;  ex  parte  Golding,  L.  R.  13  Ch. 

Mason,  2  Term,  70.  D.  624;  Kemp  v.  Falk,  L.  R.  14  Ch. 

1  Spalding  c.Ruding,  6  Beav.  376;  D.  446;  on  app.  L.  R.  7  App.  573. 


534         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

absolute.1  No  secret  agreement  between  a  vendor  and  ven- 
dee in  relation  to  the  obtaining  and  use  of  bills  of  lading  can 
affect  the  title  of  a  bona  fide  pledgee,  who  has  made  an  ad- 
vance of  money  upon  such  bills  of  lading,  without  notice.1 
The  rules  of  equitable  estoppel  applied  in  cases  where  the 
bill  of  lading  is  negotiable,  is  also  invoked  in  favor  of  the 
innocent  pledgee  for  value,  where  the  bill  of  lading  is  rather 
quasi-negotiable  than  actually  so,  that  where  one  of  two 
innocent  parties  must  suffer  from  the  wrongful  acts  of  a 
third  person,  the  law  casts  the  burden  or  loss  upon  him 
by  whose  act,  omission,  or  neglect,  such  third  party  was 
enabled  to  do  the  wrong,  or  occasion  the  loss.3 

§  398. — ESTOPPEL  OF  OWNER,  WHERE  THIRD  PERSON 
HOLDS  BILL  INDORSED. — The  owner  of  property,  repre- 
sented by  a  bill  of  lading,  may,  by  his  affirmative  acts  or 
neglects,  in  and  about  such  bill  of  lading,  estop  himself  to 
set  up  any  defenses  or  equities  as  against  an  innocent  holder 
for  value.  Where  a  bill  of  lading  is  delivered  indorsed  by 
the  owner  to  a  third  person  so  as  to  vest  the  legal  title  and 
apparent  ownership  in  the  holder,  and  an  innocent  pledgee 
is  deceived  into  advancing  money  upon  the  faith  and  credit 
of  such  title  and  apparent  ownership,  and  a  loss  results,  it 
is  placed  upon  the  owner  who,  with  mistaken  confidence, 
has  placed  an  indorsed  bill  of  lading  in  the  hands  of  another, 
thus  enabling  the  latter  to  deal  with  it  as  if  he  were  the 


'Dows  v.  Kidder,  84  N.Y.  121;  35  N.  Y.  556;  Wyne  v.  Macdonald, 

Saltus  v.  Everett,    20  Wend.  267  ;  39  Ib.  233. 

Fleeman  v.  McKcan,  25  Barb.  474 ;  »  Savings  Bank  v.  Railroad  Co.  20 

Beavers  v.  Lane,  6  Duer,  238;  Smith  Kan.  519;  In  re  Brown,  1  Biss.  76; 

«.  Lynes,  5  N.  Y.  41;  Crocker  v.  Bradstreet  v.  Heran,  2  Blatchf.  116; 

Crocker,  31  Ib.  507 ;  Wait  v.  Green,  Michael  v.  Ware,  3  Neb.  229  ;  Relyea 

36  Ib.  556 ;  Paddon  v.  Taylor,  44  Ib.  v.  N.  H.  Railway  Co.  42  Conn.  579; 

871;   Rawles  v.  Deshler,  42  N.  Y.  Armour  v.  Michigan  Cent.  R.R.  Co. 

572;  Comper  «.  Coningham,  77  Ib.  65  N.  Y.  Ill;  Bowles  v.  Deshler,  43 

891.  Ib.  572 ;  Carr  v.  London  Ry.  Co.  L. 

*  Western    Union    R.    R    Co.  v.  R.  10  0.  P.  307 ;  Lickbarrow  v.  Ma- 
Wagner,  65  111.  197;  Wait  v.  Greene,  son,  2  Term,  63. 


THE  PLEDGEE,  UNDER  ESTOPPEL.         535 

actual  owner.1  The  title  of  a  bona  fide  pledgee  for  value, 
without  notice,  of  a  bill  of  lading,  was  recognized  in  the 
case  of  the  Farmers  and  Mechanics'  Bank  v.  Hazel- 
tine,  in  the  New  York  Court  of  Appeals,1  arising  out  of 
the  frauds  committed  by  an  agent  named  Brown,  and 
in  which,  and  in  other  cases,  the  rights  of  pledgees  as 
against  persons  dealing  in  an  unauthorized  manner  with 
property  shipped  under  bills  of  lading  bearing  restrictive 
indorsements,  were  adjudicated.  In  all  of  these  cases,  the 
court  (Andrews,  J.)  say:  "  The  court  did  not  question  the 
well  established  doctrine  that  a  general  indorsement  and 
delivery  of  a  bill  of  lading  vests  in  the  indorsee  the  title  to 
the  bill,  and  the  property  thereby  represented,  so  as  to  en- 
able him  to  transfer  to  a  bona  fide  purchaser,  for  value,  a 
good  title,  whatever  secret  arrangement  may  have  existed 
between  the  original  parties  ;"  and  that  if  the  delivery  under 
the  bill  of  lading  had  "  vested  the  title  to  the  property  in 
Brown,  and  the  trust  contained  in  the  instrument  was  a 
trust  affecting  the  proceeds  to  be  realized  from. a  sale,  then, 
upon  well-settled  principles,  a  bona  fide  purchaser  from 
Brown  would  acquire  a  good  title  which  would  not  be  di- 
vested or  disturbed  by  a  misappropriation  by  Brown  of  the 
proceeds  of  the  sale  in  contravention  of  the  trust." 

The  possession  of  property  by  a  broker  or  agent,  upon 
which  is  obtained  from  the  carrier  when  shipping  the  goods 
to  his  principal,  a  bill  of  lading  deliverable  to  his  own  order, 
enables  such  broker  or  agent  to  bind  the  owner  by  a  trans- 
fer of  the  bill  of  lading  to  a  pledgee  to  secure  an  advance, 
when  made  on  the  faith  of  such  indicia  of  title,  and  with- 
out notice  of  equities,  as  that  the  principal  had  already  paid 
for  the  goods,1  or  that  the  indorsement  and  transfer  of  the 
bill  of  lading  was  procured  by  a  fraudulent  misrepresenta- 
tion.4 The  rights  of  bona  fide  pledgees  of  bills  of  lading 

1  Gurney    v.     Behrend,    3    El.   &  'Henry B.Philadelphia  Warehouse 

Bl.  622 ;  The  Argentina,  L.  R.  1  A.  Co.  81  Pa.  St.  76. 

&  E.  370.  4  Dows  v.  Greene,  24  N.  Y.  638. 

•  78  N.  Y.  104,  108. 


536          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

indorsed,  receiving  the  same  as  collateral  security  for  ad- 
vances, without  notice  of  equities,  were  sustained  as  against 
a  consignor  in  one  case  and  a  shipowner  in  another,  where 
the  same  were  drawn  and  indorsed  in  fraud  of  the  consignor 
and  shipowner.1  A  vendor  obtained  discount  of  bills  of 
exchange  drawn  against  a  consignment,  and  attached  bills 
of  lading  as  collateral  security,  the  pledgee  agreeing  to  give 
tip  the  bills  of  lading  upon  receipt  of  satisfactory  accept- 
ailces  of  the  bills  of  exchange,  or  upon  failure,  to  sell  the 
goods  and  apply  the  proceeds  to  the  payment  of  the  bills. 
The  proceeds  of  a  sale  of  the  bills  of  lading  were  misappro- 
priated by  a  broker  to  whom  they  had  been  entrusted.  The 
pledgee  sued  the  parties  upon  the  bills  of  exchange,  and 
was  allowed  to  recover,  the  misappropriation  by  the  broker 
constituting  no  defense.8 

§  399.  THE  PLEDGE  OF  VOID  on  FRAUDULENT  BILLS 
OF  LADING. — The  rules  of  estoppel  in  pais  were  enforced  in 
Armour  v.  Michigan  Central  Railroad  Company,3  decided 
by  the  New  York  Court  of  Appeals.  In  that  case,  an  agent 
of  the  railroad  company  issued,  upon  the  delivery  of  a  forged 
warehouse  receipt,  two  bills  of  lading,  acknowledging  the 
receipt  of  property,  consigned  to  the  plaintiff  at  New  York. 
Advances  were  made  upon  bills  of  exchange  drawn  against 
the  fictitious  shipment,  the  bills  of  lading  being  attached  as 
security,  and  the  plaintiff  paid  the  same  upon  presentation, 
on  the  faith  and  credit  of  the  railroad  bills  of  lading.  No 
merchandise  was  in  fact  ever  shipped.  Suit  was  brought 
by  the  holder  of  the  bills  of  lading  against  the  company. 
As  the  acts  of  the  agent  were  within  the  apparent  scope  of 
his  authority,  an  estoppel  arose  against  the  company  to 
deny  the  receipt  of  the  property,  and  it  was  required  to  pay 
the  plaintiff  damages.  A  bill  of  exchange,  drawn  upon  A 
by  a  foreign  correspondent,  with  bills  of  lading  attached, 

1  Gabarron  v.  Krecft,  L.  R.  10  Ex.         *  Magoun  v.  Sinclair,  66  N.  Y.  30. 
274 ;  Kreeft  v.  Thompson,  Ib.  274,          «  65  N.  Y.  111. 
282. 


THE   PLEDGEE,    UNDER   ESTOPPEL.  587 

was  sent  to  a  banker  for  collection,  who  presented  the  bill 
of  exchange  for  acceptance  with  the  memorandum, "  The 
bank  holds  bill  of  lading  and  policy  for  251  bales  of  cotton, 
per  William  Cummings."  The  plaintiff  accepted  the  bill 
and  afterwards  paid  the  money,  but  the  bill  of  lading  proved 
to  be  a  forgery.  An  action  was  brought  to  recover  the  mon- 
ey, but  as  the  memorandum  of  the  bank  did  not  amount  tp 
a  representation  that  the  bill  of  lading  was  genuine,  nor 
to  a  guaranty  of  its  validity,  the  plaintiff  had  no  equity 
to  recover  the  money.1  A  bill  of  lading,  fraudulent 
or  fictitious,  or  simply  evidence  to  establish  a  criminal 
offense,  is  void  as  a  security  for  an  advance,  irrespective  of 
the  knowledge  or  want  of  knowledge  of  the  indorsee.* 
Such  indorsee  of  a  fictitious  bill  of  lading,  or  of  one  fraudu- 
lently transferred,  has  no  remedy  against  an  indorser,  unless 
for  special  wrong.8 

§  400.  APPLICATION  OF  ESTOPPEL,  AS  BETWEEN  SUCCESS- 
IVE PLEDGEES. — The  rule  that  in  order  to  create  an  estoppel 
as  against  an  owner  of  property,  which  has  come,  through 
the  fraudulent  acts  of  a  third  person,  into  the  hands  of  a 
bona  fide  purchaser  for  value,  the  former  must  have  enabled 
the  wrongdoer  to  commit  the  fraud,  and  that  a  tortious  act 
of  a  third  person,  to  which  the  owner  was  not  a  party,  and 
in  no  way  aided,  will  not  defeat  his  title  to  the  property,  is 
applied  in  favor  of  a  pledgee  of  bills  of  lading  as  against 
subsequent  pledgees.  The  rule  was  applied  in  favor  of  a 
pledgee  of  a  bill  of  lading  indorsed,  upon  the  security 
of  which  a  note  was  discounted,  as  against  a  pledgee  of 
bills  of  lading,  falsely  issued,  upon  which  no  goods  were 
delivered,  as  security  for  drafts  accepted  and  paid  for  the 

1  Leather  v.  Simpson,  L.  R.  11  Eq.  Schooner  Freeman  v.  Buckingham, 

398;  Robinson  ».  Reynolds,  2  Q.  B.  18  How.  182;  Grant  v.  Norway,  10 

196,  202.  C.  B.  665. 

'Bassettfl.  Spofford,  45  K  Y.587;          'Maybee   v.  Tregcut,    47    Mich. 

Brower   v.   Peabody,    13    Ib.   121;  495. 
Saltus   v.  Everett,   20  Wend.  267; 


538          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

pledger  and  general  owner.  The  pledger,  without  the 
knowledge  of  the  first  pledgee,  caused  the  property  repre- 
sented by  the  genuine  bill  of  lading  to  be  shipped  and 
delivered  to  the  pledgees  holding  such  fictitious  bills,  who 
upon  demand  refused  to  surrender  it  to  the  first  pledgee, 
and  afterwards  sold  the  same.  The  first  pledgee,  having  a 
special  ownership  in  and  possession  of  the  property,  any 
dominion  exercised  over  the  same  by  the  general  owner 
without  his  consent,  was  tortious,  and  transferred  no  title.1 
As  the  pledgee  had  not  clothed  the  general  owner  with  any 
apparent  title  or  authority  to  dispose  of  the  property,  or  in 
any  way  aided  in  the  fraud  practiced  on  the  second  pledgees, 
no  estoppel  arose  as  against  him  to  reclaim  his  property.* 
A  like  rule  was  applied  in  favor  of  a  pledgee  of  a  bill  of 
lading,  where  through  the  fraudulent  conduct  of  a  proposed 
vendee  of  the  property  from  its  agent,  holding  under  a 
restricted  title,  a  second  bill  of  lading  for  the  same  property 
was  obtained  from  a  railroad  company,  under  which  the 
goods  were  sold  by  a  pledgee.*  Subsequently,  the  pledgee 
of  the  second  bill,  having  paid  the  judgment,  was  allowed  to 
recoup  itself  ill  a  suit  against  the  railroad  company.4 

§  401.  THE  PLEDGE  OF  BILLS  OF  LADING  UPON  FRAUD- 
ULENT SHIPMENTS. — The  use  of  bills  of  lading,  with  or 
without  indorsement,  as  collateral  security  for  loans  or  dis- 
counts of  commercial  paper,  places  the  pledgee  in  possession 
of  the  property  described  in  the  bills,  as  if  the  same  were 
actually  delivered  to  him.  The  bill  of  lading,  whether 
issued  by  a  shipmaster  or  by  an  agent  of  a  railroad  company, 
is  the  only  evidence  of  title  and  ownership  of  the  goods 
shipped,  after  delivery  to  the  carrier,  that  the  owner  has  ;  it 

1  Marine  Bank  t>.  Fiske,  71  N.  Y.  Barnard  c.  Campbell,  55  N.  Y.  450, 

853  ;  State  Bank  ».  Jones,  4  N.  Y.  462. 

497;  Dows  v.  Nat.  Bank,  91  U.  S.  'Mechanics'    Bank    v.    Farmers' 

618 ;   Jenkyns  ».  Brown  14  Q.  B.  Bank,  60  N.  Y.  40. 

496.  *  Farmers'  Bank  v.  Eric  R.R.  Co. 

•  Marine  Bank  v.  Fiske,  supra  ;  72  N.  Y.  188. 


THE   PLEDGEE,    UNDER   ESTOPPEL.  539 

is  a  voucher,  issued  by  the  carrier,  whether  by  land  or 
water,  that,  upon  payment  of  freight  the  goods  will  be 
delivered  to  the  owner  of  the  bill  of  lading,  or  to  his 
assigns.  The  bill,  as  a  symbol  of  property,  is  not  a  promise 
to  pay  money,  nor  a  representative  of  money,  and  the  holder 
is  not  charged  with  the  duties  of  the  indorsee  of  commercial 
paper.  The  title  acquired  by  the  pledgee  by  indorsement 
of  a  bill  of  lading  is  that  of  the  indorser  ;  or  such  rights  as 
the  original  holder  of  the  bill  of  lading  had.1  Where  a 
bill  of  lading  is  obtained  by  a  person  from  a  carrier  for 
goods  which  are  not  his  property,  or  which  he  has  no  author- 
ity from  the  owner  to  ship,  or  for  which  he  has  not  paid  the 
purchase  price,  as  agreed,  neither  the  holder  of  such  bill 
nor  his  transferee,  though  lie  be  an  innocent  pledgee  for 
value,  without  notice,  can  acquire  any  rights  or  title  as 
against  the  true  owner,  unless  the  latter  is  within  some 
of  the  recognized  rules  of  estoppel  in  pais.2 

§  402.  AND  WHERE  PLEDGEE  HAS  NOTICE  OF  PRIOR 
EQUITIES. — The  title  of  the  owner  of  property  is  notdefeated 
as  to  third  parties  who  have  made  advances  on  bills  of  lading 
representing  such  property  in  good  faith  and  without  notice 
of  an  agreement  that  payment  should  be  made  before  the  ti- 
tle to  the  property  should  pass,  where  the  vendor  has  noti- 
fied the  pledgee  of  his  claim  to  the  property,  and  the  pledgee, 
although  the  property  has  been  sold,  still  retains  in  his  hands 
funds  of  the  fraudulent  vendee  sufficient  to  repay  the  vendor. 
Such  proceeds  are  regarded  as  taking  the  place  of  the  prop- 

1  Canadian  Bank  «.  McCrea,  106         *  Shaw  v.  National  Bank,  101  U. 

111.281 ;  Forbes  ».  Boston  &  L.  R.R.  S.  564;  Bradner  v.  Campbell,  55  N. 

Co.  133  Mass.  154  ;  Farmers'  Bank  Y.  456  ;  Saltus  v.  Everett,  20  Wend. 

v,  Logan,    74    N.  Y.    568  ;    Saltus  267 ;  Farmers'  Bank  v.  Logan,  74  N. 

0.  Everett,  20  Wend.  269;  Burton  v.  Y.  568;  Coggill  «.  Hartford  R.R.  Co. 

Curyea,  40  111.  320;  Hunt  «.  Miss.  8  Gray,  545;  State  Bank  v.  Gardner, 

Central  Ry.  Co.  29  La.  Ann.  446 ;  15  Ib.  362 ;  Maybee  v.   Tregent,  47 

Fellows  v.  Powell,  16  Ib.  316 ;  Evans-  Mich.  495;  Evansville  etc.  R.R.  Co. 

ville  etc.  R.  R.  Co.  v.  Erwin,  84  Ind.  v.  Ervin,  supra. 
457. 


540          QUASI-NEGOTIABLE  COLLATERAL   SECURITIES. 

erty,  and  the  vendor  is  entitled  to  recover  the  same,  although 
for  any  sums  paid  to  the  vendee  before  notice,  the  pledgee 
is  entitled  to  a  credit.  Nor  is  the  right  of  the  unpaid  ven- 
dor affected  by  the  fact  that  other  moneys  have  been  mingled 
with  the  proceeds  of  his  property.1  The  holder  of  one  of 
a  set  of  three  bills  of  lading  as  collateral  security  for  an  ad- 
vance to  the  consignee,  where*  chargeable  with  notice  that 
others  of  the  set  have  already  been  transferred  by  the  con- 
signor as  collateral  security  for  advances,  can  acquire  no 
rights  in  opposition  to  those  of  the  first  pledgee.2  An  agree- 
ment to  advance  $3,000  was  made  upon  certain  specified 
property,  the  lender  paying  $1,500  at  the  time,  and  $1,500 
upon  the  indorsement  and  delivery  of  a  bill  of  lading.  Prior 
to  the  receipt  of  such  bill,  another  bill  of  lading  .covering  the 
same  goods  was  obtained  by  fraud,  and  pledged  to  secure 
another  proposed  advance,  which  was,  however,  not  made 
until  after  the  second  pledgee  had  notice  of  the  transfer  of 
the  first  bill  of  lading.  The  title  of  the  first  pledgee  was 
preferred  to  the  extent  of  his  whole  advances.3 

§  403.  THE  PLEDGEE'S  TITLE  SUBJECT  TO  TERMS  OF  BILL 
OP  LADING. — Where  property  is  in  transitu  or  remains  in  the 
possession  of  a  carrier  or  wharfinger  undelivered,  a  presump- 
tion arises  that  bills  of  lading  are  in  existence,  and  all  per- 
sons dealing  with  such  property,  although  advancing  value, 
do  so  at  their  peril,  in  the  absence  of  such  bill  of  lading. 
The  production  of  the  bill  of  lading  which  is  the  indicia  or 
muniment  of  title  so  long  as  the  goods  remain  in  the  posses- 
sion of  the  carrier  or  wharfinger,  may  disclose  that  its  face 
shows  some  special  clause  or  notation  or  restriction  upon  de- 

1  Dows  0.  Kidder,  84  N.  Y.  121 ;  nell    v.  Doff  ell,  4  DcG.   M.   &  G. 

Van  Alen  v.  American  Nat.  Bank,  372. 

52  Ib.  1;  Caussidere  v.  Beers,  41  Ib.  8  Guilbcrt  v.  Guiguon,  L.  R  8  Ch. 

198;   Cobb  v.  Dows,    10    Ib.  341;  16;  Shaw  v.  National  Lank,  101  U. 

United  States  t>.  State  Bank,  96  U.  S.  564. 

S.  30;  Merrill  v.  Bank,  18  Pick.  32;  «  Stevens  «.  Boston  R  R  Co.  8 

Voil  v.  Mitchell,  4  Wash.  105;  Frith  Gray,  262. 
c.  Cortland,  2  IJ.  &  M.  417;  Pen- 


THE   PLEDGEE,   UNDER   ESTOPPEL. 


541 


livery  of  the  property,  or  there  may  be  indorsed  upon  it  a 
contract  of  pledge  under  which  the  proceeds  of  the  sale  of 
the  property  are  devoted  to  the  payment  of  a  certain  advance, 
or  some  other  specific  indorsement.  Purchasers  or  pledgees 
of  property  described  in  a  bill  of  lading,  so  indorsed,  although 
without  notice  and  paying  value,  are  subject  to  defenses 
arising  from  the  instrument.  Their  duty  is  to  call  for  its 
production,  since  upon  neglect  so  to  do,  any  rights  acquired 
in  the  property  are  subject  to  the  equities  and  liens  of  which 
they  have  constructive  knowledge  or  notice.1  This  rule 
was  enforced  in  the  cases  of  purchasers  of  property  covered 


1  Bank  of  Rochester  v.  Jones,  4  N. 
Y.  497 ;  Bank  of  Commerce  v.  Bis- 
sell,  72  Ib.  615;  Marine  Bank  v. 
Fiske,  7t  Ib.  353;  First  Nat.  Bank 
v.  Shaw,  61  Ib.  283;  s.  c.  71  Ib.  353; 
Mechanics'  Bank  v.  Farmers'  Bank, 
60  Ib.  40 ;  Farmers'  Bank  v.  Logan, 
74  Ib.  568  ;  Farmers'  Bank  v.  Hazel- 
tine,  78  Ib.  104  ;  Dows  v.  Perrine, 
16  Ib.  325.  In  Farmers'  Bank  v. 
Logan,  supra,  p.  585-6,  sustaining 
the  rights  of  a  bank,  which  had 
discounted  a  draft,  upon  the  security 
of  a  bill  of  lading,  upon  which  it 
placed  a  restrictive  indorsement,  as 
against  purchasers  from  an  agent 
whose  sale  was  a  fraud  upon  the 
pledgee,  the  Court  of  Appeals  of 
New  York  (Folger,  JY)  say:  "It  ap- 
pears that  there  were  infirmities  in 
the  title  which  the  appellants  [the 
purchasers]  got  from  Brown  [the 
agent],  or  rather  they  got  no  title 
from  him  ;  for  there  had  never  been 
a  contract  de  facto  which  purported 
to  pass  the  property  from  the  owner 
to  him.  All  that  the  appellants  had, 
upon  which  they  had  a  right  to  rely, 
was  the  fact  of  the  possession  of 
the  wheat  by  Brown,  and  the  pur- 
chase of  it  by  them,  in  accordance 


with  the  usual  course  of  business  on 
the  produce  exchange.  *  *  *  The 
purchaser  of  chattel  property  buys 
at  his  risk  of  the  title,  and  if  he 
would  be  safe,  must  make  inquiry. 
He  may  not,  with  certainty,  stop  at 
the  fact  of  possession,  but  must 
learn  how  the  possession  has  been 
acquired.  In  every  such  case  as 
this,  the  muniments  of  a  real  title 
are  easy  to  be  produced.  When  the 
property  is,  in  fact,  in  the  carrier's 
hands,  the  bill  of  lading  will  show 
to  whom  alone  he  has  the  right  to  de- 
liver it.  And  if  the  directions  of 
that  document  are  relied  upon,  there 
cannot  be  much  risk.  A  reliance 
upon  it,  and  a  prior  inspection  of  it, 
may  delay  transactions,  but  they 
will  protect  all  innocent  and  well- 
meaning  parties,  and  thwart  seri- 
ously only  those  who  mean  to  do 
wrong  or  are  too  reckless  to  try  to 
do  right.  The  appellants  were  not 
protected  by  the  fact  of  possession 
in  Brown,  because  possession  alone 
does  not  give  the  power  to  pass  a 
valid  title.  Hence  when  they  bought 
of  him  they  got  no  greater  right 
than  he  had  in  the  wheat." 


542          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

by  a  bill  of  lading  with  a  restrictive  indorsement ;'  and 
upon  the  default  of  one  of  the  purchasers  in  payment  of  the 
judgment  the  pledgee  obtained  a  further  judgment  as  against 
a  warehouseman,  chargeable  with  notice  of  the  restricted 
terms  of  a  bill  of  lading  and  who  had  delivered  the  goods.3 
And  a  judgment  was  obtained  against  a  carrier,  also  charge- 
.able  with  like  knowledge,  who  had  been  guilty  of  a  wrong- 
ful delivery,  although  claiming  protection  under  a  custom  to 
deliver  to  parties  to  whom  notice  was  requested  to  be  sent 
by  the  bill  of  lading,  as  in  the  case  in  question.* 

§  404.  THE  PLEDGEE'S  REMEDIES  FOR  MISAPPROPRIA- 
TION OF  PROPERTY. — The  indorsement  and  delivery  of  a  bill 
of  lading  as  collateral  security  for  a  loan  or  discount  of  com- 
mercial paper,  vesting  the  legal  title  in  the  property  and  the 
right  of  possession  in  the  pledgee,  entitles  him  to  an  action 
of  replevin  where  the  consignor  or  any  other  person  has  at- 
tached the  goods.4  Where  goods  covered  by  a  bill  of  lad- 
ing indorsed  and  in  the  hands  of  a  pledgee  for  value,  have 
been  sold  under  legal  process,  the  pledgee  may  appear  in  the 
proceedings,  and  will  be  allowed  to  recover  so  much  of  the 

1  Farmers'  Bank  V.  Logan,  74  N.  *  Farmers'  and  Mechanics'  Bank 

Y.  568;  Farmers'  Bank  «.  Atkinson,  v.  Hazeltine,  78  N.  Y.  104. 

74  N.  Y.  587.    The  special  indorse-  8  Bank  of  Commerce  ».  Bissell,  72 

ment  on  these  bills  of  lading  read:  N.  Y.615.    In  Ontario  Bank  v.  New 

"  To  E.  S.  BUOWN:  Jersey  Steamboat  Co.  59  Ib.  510,  the 

"The  property  mentioned  in  this  bank  was  not  permitted  to  object  in 
bill  of  lading,  with  insurance  on  the  an  action  against  the  carrier,  to  a 
same,  is  pledged  to  the  Farmers  and  delivery  to  the  party  directed  to  be 
Mechanics'  Bank  of  Buffalo  as  notified  by  reason  of  the  long-con- 
security  for  the  payment  of  the  ac-  tinued  custom  so  to  treat  like  ship- 
companying  draft  for  $7,791.77,  and  ments  between  the  same  parties, 
the  property  is  placed  in  your  cus-  where  no  restrictive  indorsements 
tody  in  trust  for  that  purpose,  and  appeared  on  the  bill  of  lading, 
is  not  to  be  diverted  to  any  other  4  Alderman  v.  Eastern  Ry.  Co. 
use  until  the  draft  is  paid;  and  upon  115  Mass.  233;  Stone  v.  W.  St.  Louis 
your  accepting  and  paying  the  draft  etc.  Co.  9  Bradw.  48;  Mich.  Cen.  K. 
the  claim  of  the  bank  will  cease.  R.  Co.  v.  Phillips,  60  111.  190 ;  Peters 
Without  recourse.  v.  Elliot,  78  Ib.  336. 
F.  SIDWAY,  cashier." 


THE   PLEDGEE,    UNDER   ESTOPPEL.  543 

proceeds  as  against  the  creditor,  as  is  equal  to  the  amount  of 
his  advances.1  The  pledgee  of  a  bill  of  lading  may  bring  an 
action  of  trover  for  the  conversion  of  the  property  against 
anyone  who  does  not  show  a  better  title  ;s  and  may  recover 
the  full  value  of  the  goods,  holding  any  surplus  beyond  the 
amount  of  his  own  advance  for  the  general  owner.3  Trover, 
however,  will  not  lie  as  against  a  commission  merchant  who 
has  sold  grain  consigned  to  him  for  sale,  the  bills  of  lading 
of  which  had  been  pledged  for  advances,  and  who  retains 
the  proceeds  on  account  of  the  indebtedness  of  the  shipper 
to  him  under  a  previous  agreement.  The  action  should  be 
for  money  had  and  received.4  Where  there  has  been  a 
wrongful  delivery  of  goods  by  a  shipmaster,  an  indorsee  of  a 
bill  of  lading  providing  for  delivery  "to  order  or  assigns," 
is  entitled  to  libel  the  vessel  on  which  such  goods  were 
shipped  for  failure  to  deliver  them.  Nor  is  it  material  that 
the  indorsee  is  only  an  agent  or  trustee  for  others,  as  a  cashier 
of  a  bank  which  has  made  advances  bona  fide  on  such  bill  of 
lading.5  Instructions  were  given  to  a  bank  to  indorse  a  bill 
of  lading  only  upon  payment  of  the  draft  to  which  it  was 
attached,  which,  having  been  paid  with  borrowed  money, 
the  bill  of  lading  upon  delivery  was  at  once  indorsed  as  col- 
lateral security  to  the  lender.  The  legal  title  to  the  goods 
having  passed  to  the  pledgee  by  such  indorsement  as  against 
a  previous  vendee  of  the  goods  "  to  arrive,"  an  action  for 
conversion  against  a  railroad  company  delivering  the  goods 
to  the  vendee  was  sustained,  although,  being  a  connecting 
line,  it  had  no  knowledge  of  the  bill  of  lading.6 

§  405. — THE  UNPAID  VENDOR'S  RIGHT  OF  STOPPAGE  IN 
TRANSITU. — Stoppage  in  transitu  is  a  right  which  an  unpaid 

1  Hathaway  v.  Haynes,  124  Mass.  Adams  v.  O'Connor,  supra ;  Harris 
311.  v.  Birch,  9  M.  &  W.  391. 

2  Adams  c.  O'Connor,   100  Mass.  4  Taylor  v.  Turner.  87  111.  296. 
515  ;    Burke    v.   Savage,    13   Allen,  5  The  Thames,  14  Wall.  98. 

405 ;  Dows  v.  Nat.  Bank,  91   U.  S.          «  Alderman  'v.  Eastern  R.  R.   Co. 
618;  Tiedman  v.  Knox,  5:>  Md.  612.      115  Mass.  243. 
*  Allman  e.  Barnard,  7  Gray,  554; 


541:          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

vendor  has,  when  selling  goods  on  credit,  to  resume  control 
and  possession  of  property  while  in  the  custody  of  a  carrier 
or  middleman,  in  transitu  to  the  vendee,  and  before  deliveiy, 
in  the  event  of  the  insolvency  of  the  latter,  occurring  sub- 
sequently to  the  sale  of  the  goods.1  The  right  exists  only 
as  between  vendor  and  vendee,  or  consignor  and  consignee.1 
The  delivery  of  goods,  sufficient  to  defeat  the  vendor's  right 
of  stoppage  in  transitu,  may  be  at  a  place  from  which  the 
consignee  intends  to  order  them  to  a  new  destination.* 
The  right  of  stoppage  in  transitu  by  the  unpaid  vendor  op- 
erates, not  as  a  rescission  of  the  contract  of  sale,  but  as  an 
assertion  of  the  unpaid  vendor's  right  to  enforce  a  lien  for 
the  purchase  money.  The  effect  of  its  exercise  is  to  revest 
the  consignor  in  his  rights  as  an  unpaid  vendor  as  against  the 
vendee,  but  not  to  rescind  the  contract  of  sale  between  the 
parties.4 

The  right  of  stoppage  in  transitu  of  the  unpaid  vendor, 
however,  is  defeated  by  an  indorsement  and  delivery  of  the 
bill  of  lading,  to  a  bona  fide  pledgee,  for  a  valuable  consid- 
eration, without  notice  of  any  facts  upon  which  a  right  of 
stoppage  in  transitu  might  arise.  To  the  extent  of  the 
pledgee's  advances,  the  owner  is  not  permitted  to  insist  upon 
his  right  to  intercept  the  goods  consigned  to  the  insolvent 
consignee.5  The  rights  of  a  pledgee  are  sustained  where 

'Newhall  v.  Targes,  15  Me.  314;  307;  Stanton  r>.  Eager,  16  Ib.  467, 

Eaton  v.  Cook,  32  Ib.  58;  Railroad  475;  Arnold  v.  Delano,  4  Cush.  33, 

Co.  v.  Freed,  38  Ark.  614  ;  Cabeenc.  39;  Newhall  v.  Varges,   13  Me.  93; 

Campbell,  30  Pa  St.  254;  Calahan  v.  a.  c.  15  Ib.  314  ;  Rogers  v.  Thomas, 

Babcock,  21  Ohio  St.  281.  20  Conn.  83;  Ellis  v.  Jones,  5  Ohio, 

•Kinlocko.  Craig,  3  Term,  781.  88,  98;  Harris  v.   Pratt,   17  N.  Y. 

*Covell  v.  Hitchcock.  23  Wend.  263;  Kemp  v.  Falk,  L.  R.  7  App. 
611;  Harris  t>.  Pratt,  17  N.  Y.  249;  573.  581  (Lord  Blackburn). 
Becker  v.  Hallgarten,  86  Ib.  167,  'Becker  v.  Hallgarten,  86  N.  Y. 
174;  Biggs  v.  Barry,  2  Curtis,  259  ;  167;  Rawleg  «.  Deshlcr,  42  Ib.  572; 
Valpy  v.  Gibson,  4  C.  B  837;  Dixon  Dows  v.  Greene.  32  Barb.  490;  Loeb 
t>.  Baldwin,  5  East,  175:  Bolton  v.  *>.  Peters.  63  Ala.  243;  Lc:;  c.  Kim- 
Railroad  Co.  L.  R.  1  C.  P.  439.  ball,  45  Me.  172;  Audenried  v.  Ran- 

4  Babcock  v.   Bonncll,  80   N.  Y.  dall.  3  Cliff.  93;  Walter  ».   Ross.  2 

244;   Rowley  v.  Bigelow,   12  Pick.  Wash.  283;  Chandler  v.  Fulton,  10 


THE  PLEDGEE,    UNDER   ESTOPPEL.  545 

a  bill  of  lading  is  taken  in  his  own  name,  or  of  persons  act- 
ing in  his  behalf  as  agents.  Receiving  a  bill  of  lading  so 
drawn,  the  pledgee  is  entitled  to  the  same  rights  as  against 
an  unpaid  vendor  as  if  he  had  received  as  collateral  security 
a  bill  of  lading  to  the  order  of  the  consignee  and  vendee, 
indorsed  and  delivered.1  The  hypothecation  of  a  bill  of 
lading  by  a  vendee  as  collateral  security  for  a  loan  made  in 
good  faith,  where  the  amount  is  less  than  the  actual  value 
of  the  goods  covered  by  the  bill  of  lading,  is  not  sufficient 
in  equity  to  defeat  the  right  of  stoppage  in  transitu  of  the 
unpaid  vendor,  so  far  as  the  property  is  of  value  in  excess 
of  the  valid  claims  of  the  pledgee,  or  his  recovery  of  the 
proceeds  of  the  goods  held  by  the  pledgee  after  reimburse- 
ment of  his  advances.*  The  pledgee  is  not  allowed,  under 
such  circumstances,  to  appropriate  a  balance  remaining  in 
his  hands,  to  the  liquidation  of  a  general  account  with  the 
pledger,  as  against  such  unpaid  vendor.8 

§  406. — THE  PLEDGEE  A  HOLDER  FOR  VALUE,  AS  AGAINST 
UNPAID  VENDOR. — In  the  leading  case  of  Kemp  v.  Falk, 
recently  decided  by  the  English  House  of  Lords,  a  purchaser 
of  goods  on  credit,  shipped  by  the  vendor,  indorsed  the  bill 
of  lading  to  a  bank  as  security  for  an  advance.  Before  the 
arrival  of  the  ship,  the  consignees  sold  the  goods  "  to  arrive  " 
to  sub-purchasers.  The  vendee  became  bankrupt,  and 
before  delivery  and  payment  by  the  sub-purchasers,  the 
vendor  gave  notice  of  a  stop  to  the  shipmaster.  The  con- 
signees remitted  the  proceeds  of  the  sub-sales  to  the  pledgee, 
which,  after  repaying  itself,  handed  the  balance  to  the  trus- 
tees in  bankruptcy  of  the  vendee.  The  right  of  stoppage 

Tex.  2 ;  Vertue  v.  Jewell,  4  Camp.  624;  Coventry  v.  Gladstone,  L.  R.  6 

31 ;  Lickbarrow  v.  Mason,  2  Term,  Eq.  44 ;  Berndtson  «.  Strang,  L.  R. 

63.  4  Eq.  486;  s.  c.  L.  R.  3  Ch.  588;  In 

1  Becker  v.  Hallgarten,  86  N.  Y.  re  Westzinthus,  5  B,  &  Ad.    817; 

167.  Spalding  v.  Ruding,  6  Beav.  376. 

*  Kemp  v.  Falk,  L.  R.  7  App.  573,          3  Spalding  v.  Ruding,  6  Beav.  376; 

577;  affirming  s.  c.L.R.  14  Ch.D.  446;  aff.  15  L.   J.   Ch.   374;    Halsey  ». 

ex  parte  Golding,  L.  R.  13  Ch.  D.  Warden,  25  Kan.  128. 
35 


546          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

in  transitu  of  the  unpaid  vendor  was  not  at  an  end  when 
the  notice  to  the  master  was  given,  so  that  the  vendor  was 
entitled  to  the  balance  after  payment  of  the  pledgee's  ad- 
vances. Lord  Blackburn,  in  the  House  of  Lords,  held  that 
such  a  negotiation  of  a  bill  of  lading  as  collateral  security 
was  clearly  a  transfer  for  value,  and  as  such,  so  far  as  it 
went,  it  defeated  the  right  of  stoppage  in  transitu,  but  left 
it  to  apply  to  everything  that  was  not  covered  by  the 
pledge.1  Lord  Selborne  (Lord  Chancellor)  also  approved 
this  view,  adding,  "  Against  what  is  this  right  of  stoppage 
in  transitu?  Not  against  some  imaginary  interest  of  the 
purchaser,  but  against  the  goods  themselves.  It  is  a  right 
to  stop  the  goods,  when  they  are  still  in  transitu  in  contem- 
plation of  law.  It  is  a  qualified  right  in  this  case,  because 
it  cannot  be  asserted  as  against  the  holder  of  the  bill  of 
lading  without  paying  him  off ;  but  the  instant  his  claim  is 
discharged,  it  is  exactly  the  same  right  as  if  there  had  been 
no  security,  as  against  the  original  purchaser  and  as  against, 
in  my  opinion,  every  one  claiming  under  him."9  The  case 
decided,  as  stated  by  Lord  Fitzgerald,  "  that  the  claim  of 
the  unpaid  vendor  against  the  surplus  produce  of  his  own 
goods,  after  providing  for  all  prior  rights,  is  superior  to  that 
of  the  creditors  of  the  vendee  who  had  not  paid  for  the 
goods."8 

1  Kemp  v.  Falk,  L.  R.  7  App.  573,          *  L.  R.  7.  A  pp.  577. 
582.  «  L.  R.  7  App.  590. 


THE  FACTOB  AS  PLEDGOB.  547 


CHAPTER   XLII. 


§407.  At  common  law,  the  factor  cannot  pledge,  but  may  assign  lien. 

408.  The  character  and  extent  of  the  factor's  lien. 

409.  The  factor,  making  advances,  becomes  a  pledgee. 

410.  The  pledgee,  with  notice,  subject  to  equities. 

411.  The  pledgee's  title  protected,  as  against  owner,  factor,  etc. 

§  407. — AT  COMMON  LAW,  THE  FACTOR  CANNOT  PLEDGE, 
BUT  MAY  ASSIGN  LIEN. — At  common  law,  a  factor  has  no 
authority  to  pledge  the  goods  of  his  principal  for  advances 
made  to  him  on  his  own  account,  or  to  secure  his  individual 
debts,1  nor  is  it  under  the  common  law,  material  that  the 
pledgee  making  such  advances  is  ignorant  that  the  factor  is 
not  the  owner  of  the  goods.3  The  authority  of  the  factor, 
under  the  common  law,  being  only  to  sell,  the  right  to 

1  Paterson  v.  Tash,  2  Strange,  1178;  Mason,  440;  Evans  t>.  Potter,  2  Gall. 

Newsora  ».  Thornton,  6  Ib.  17 ;  Me-  13 ;  Rodriguez  v.  Hefferman,  5  Johns. 

Combie  v.  Davies,  7  Ib.  5 ;  Daubigny  Ch.   429  ;    Kennedy    v.   Strong,    14 

t>.  Duval,  5  Term  R.   604;  Navul-  Johns.  28.    The  like  rule  prevailed 

shaw  v.  Brownrigg,  1    Sim.  N.  S,  in  Louisiana  prior  to  the  act  of  1876. 

573.     Kelly  v.  Smith  1  Blatchf.  290;  Stetson    0.    Gurney,    17  Lou.   166; 

Davis  v.  Russell  52  Cal.  611;  Wright  Millers.  Schneider,  19  La  Ann.  300; 

c.  Solomon,  16  Cal.  72;  Newbold  v.  Young  v.  Scott,  25  Ib.  313,  ;md  the 

Wright,   4  Rawle  195  ;    Lansatt  v.  factor  is  now  restricted  to  pledging 

Lippincott,  6    Ib.  391;   First    Nat.  to  the  amount  only  of  his  interest. 

Bank  v.  Nelson,  38  Ga.  391 ;  Bott  «.  Insurance  Co.  v.  Kiger,   103  U.  S. 

McCoy,   20    Ala.  578;    Odiorne  ».  352. 

Maxey,  13  Mass.  178;  Shaw  v.  Stone,  *  Gray  v.  Agnew,  95  111.  315,  320; 

1  Cush.  228;  Bonito  v.  Mosquiero.  2  Rodriguez  v.   Hefferman,  5  Johns. 

Bosw.  401 ;  McCreary  v.  Gaines,  55  Ch.  429 ;  Martin  v.  Cowles,  1  M.  & 

Tex.  485;   Gray  v.  Agnew,  95  111.  S.  140 ;  Newsom  v.  Thornton,  6  East, 

815;    Van    Amrige   v.  Peabody,  1  17. 


C48          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

pledge  was  refused  to  him,  even  for  the  purpose  of  raising 
funds  to  meet  bills  of  exchange  drawn  against  the  goods 
offered  as  security,  and  in  cases  where  the  proceeds  of  the 
loan  were  applied  to  the  use  of  the  principal  in  other  ways.1 
The  common  law  rule  as  to  the  absence  of  power  of  the 
factor  to  pledge  goods  of  his  principal  being  recognized,  a 
change  in  the  law  relating  to  factors,  if  desirable  for  the 
protection  of  third  persons,  lies  rather  within  the  province 
of  legislatures  than  of  the  courts.8  The  factor,  however, 
under  the  common  law,  may  deliver  the  property  of  his 
principal  into  the  custody  of  a  third  person  for  an  advance, 
with  notice  of  his  lien,  and  upon  such  transfer,  the  pledgee 
becomes  entitled  to  retain  the  property  to  the  extent  of  the 
factor's  lien.*  If  such  a  transfer  has  been  made  bonu  fide, 
the  principal  must  pay  or  tender  the  amount  of  such  ad- 
vances and  lien  before  an  action  to  recover  the  goods  can  be 
sustained.4  But  no  rights  can  be  acquired  by  a  transfer  of 
the  property  where  circumstances  of  fraud  have  intervened, 
and  neither  the  factor  nor  his  assigns  are  permitted  to  re- 
tain possession  of  such  property,  even  for  the  payment  of 
the  liens  and  charges  of  the  factor.' 

§408.  THE  CHARACTER  AND  EXTENT  OF  THE  FACTOR'S 
LTEN. — The  factor  can  only  claim  a  lien  on  the  goods  in  his 
possession.  Such  possession  must  be  lawful,  and  not 
obtained  by  any  illegal  or  tortious  act,'  while  authority  to 
an  agent  to  sell  goods  will  not  authorize  him  to  pledge 


1  Bonito  v.   Mosquiero,  2.  Bosw.  Daubigny  «.  Duval.  5  Term,  604; 

401;  Ncwsora  v.  Thornton,   6  East.  Warner  v.  Martin,  11  How.  225. 

17;  McCombie  v.  Davis,  7  East.  5.  '  Daubigny  t>.  Duval,  supra  ;  Pat- 

9  McCreary  v.  Gaincs,  55  Tex.  485.  terson   v.   Tash,   2    Strange,   1187; 

•Mann  v.  Shiffncr,  2  East.  523,  Gray  v.   Agncw,  95    111.  815,  320; 
529;  McCombie  ».   Davis,  7  Ib.  6 ;  Newbold  ».  Wright,  4  Ilavvle,  195; 
Urquhart  v.  Mclver,  4  Johns.  103;  Davis  v.  Biglcr,  62  Pa.  St.  242;  Rod- 
Rodriguez  v.  Hefferman,  5  Johns,  gers  v.  Grothe,  58  Ib.  414. 
Ch.  429.  •  Bank  of  Rochester  v.  Jones,  4 

*  Hartop    o.    Hoare,    Stra.    1187;  N.  Y.  497. 


THE  FACTOR  AS  PLEDGOE.  549 

them.1  Bad  faith  on  the  part  of  the  person  receiving  goods, 
or  a  prohibition  by  the  owner  against  pledging  them,  will 
invalidate  an  act  of  pledge  by  a  factor.*  A  factor  or  com- 
mission merchant,  in  the  absence  of  statute,  is  not  author- 
ized to  pledge  the  goods  of  his  principal  for  his  own  use;  * 
and  the  pledgee,  although  he  takes  the  goods,  or  the  docu- 
ments of  title,  without  notice  that  the  pledger  is  a  factor  or 
agent,  has  no  better  title  than  the  factor.4  And  the  same 
rule  is  applied  as  to  pledges  by  factors  for  antecedent 
debts.5 

The  factor  who  has  made  advances  upon  shipments  by 
his  principal,  is  given  a  lien  on  the  property  to  the  amount 
of  the  advance.  The  lien  thus  given  is  of  a  special  charac- 
ter and  does  not  affect  the  general  ownership  of  the  princi- 
pal in  the  property.  The  owner,  by  forwarding  goods  to  a 
factor  for  sale,  and  receiving  advances,  does  not  thereby 
abandon  his  title,  but  may  at  any  time  before  sale  by  the 
factor  reclaim  possession,  upon  the  equitable  terms  of  repay- 
ing the  factor's  advances  and  other  proper  charges.  If  the 
factor  sell  the  property  to  reimburse  himself  for  his  advan- 
ces, the  surplus,  if  any,  will  enure  to  the  benefit  of  the  prin- 
cipal.' And  a  court  of  equity  will  take  jurisdiction,  and 
enforce  performance  of  a  trust  in  favor  of  the  holder  of  any 

1  Davis   v.  Russell,  52  Cal.  611;  Macnee  v.  Gorst,  L.  R.  4  Eq.  315; 

VOSSB.  Robertson,  46  Ala.  483;  Bott  Jewan  v.  Whitworlh,   L.  R.  2  Eq. 

v.  McCoy,  20  Ala.  578;  Bonito  v.  692;  Fuentis  v.  Montis,  L.   R.  3  C. 

Mosquiero,  2  Bosw,  401 ;  Henry  v.  P.  268 ;  s.  c.  4  Ib.   93.    A  debtor 

Marvin,  3  E.  D.  Smith,  71 ;   Easton  shipping  goods  to  his  factor  for  sale, 

v.  Clark,  35  N.  Y.  225 ,  ex  parte  Als-  and  to  apply  the  proceeds  to  the 

ton,  L.  R.  4  Ch.  168;  Broadbent  v.  payment  of  an  antecedent  debt,  and 

Barlow,  3  DeG.  F.  &  J.  570.  forwarding  the  bill  of  lading,  may 

s  Navulshaw  v.  Brownrigg,  1  Sim.  afterwards  change  the  shipment  to 

N.  S.  573;  2  DeG.  M.  &  G.  441.  another  person,  without  making  the 

1  Bott  v.  McCoy,  20  Ala.  578;  Eas-  common  carrier  liable  to  the  factor. 

ton  t>.  Clark,  35  K  Y.  225.  Craft  v.  Miss.  &  T.  R.  R.  Co.  59 

*  Bott  t>.  McCoy,  20  Ala.  578.  Miss.  182. 

'Warner®.  Martin,  11  How.  209.  'United   States  v.  Villalonga,  23 

Kelly    v.    Smith,    1    Blatchf.    290;  Wall.  35. 
Henry  v.  Marvin,  3  E.  D.  Smith,  71 ; 


550          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

note  or  draft  entitled  to  the  proceeds  of  the  goods,  as  against 
a  factor  receiving  the  same  to  sell  for  the  benefit  of  such 
holder.1  Even  a  statute  extending  the  factor's  lien  to  all 
balances  on  general  account,  and  to  the  proceeds  of  sale  of 
goods  as  to  the  goods,  merely  gives  a  lien  protected  by  pos- 
session.* 


§  409.  THE  FACTOR,  MAKING  ADVANCES,  A  PLEDGEE. — 
The  relation  of  the  factor  and  principal,  where  the  former 
has  made  advances  on  the  goods  entrusted  to  him,  is  barely 
distinguishable  from  that  of  the  pledger  and  pledgee.1  A 
wrongful  sale  or  pledge  of  property  by  the  factor,  while  it 
will  not  leave  the  contract  of  pledge  intact,  does  not 
destroy  it.4  Upon  an  action  by  a  principal  against  a  pledgee 
to  recover  the  property,  his  claim  is  subject  to  the  equitable 
deduction  of  the  amount  for  which  the  factor  had  a  valid 
lien,  although  as  against  the  wrongful  pledger,  the  principal 
may  recover  his  damages,  nominal  or  special,  as  the  case 
may  warrant.5  The  measure  of  damages  in  an  action  of  tort 
is  the  value  of  the  property,  less  the  amount  of  the  advance;* 
and  interest  on  the  balance  may  be  added.1  In  an  action  of 


1  DeWolf   v.   Gardner,  12  Gush.  •  Shaw  t>.  Ferguson,  78  Ind.  547  ; 

19 ;    Rodriguez     v.    Hefferman,    5  First  Nat.    Bank    of    Louisville  v. 

Johns.  Ch.  417;  Warner  v.  Martin,  Bryce,  78  Ky.  42;  Fowler v.  Oilman, 

11  How.  224;  Patterson  v.  Tash,  2  13  Met.  267;  Briggs  v.  Boston  R.  R. 

Stra.  1178;  Guerriero  v.  Peile,  3  B.  Co.,  6  Allen, 246;  Clarke.  Dearborn, 

&  Aid.  616;  Newsom  v.  Thornton,  103  Mass.  335;  Whitney  v.  Beckford. 

6  East.  17.  105  Ib.  267;  Belden  v.  Perkins,   78 

*  United  States  v.   Villalonga,  23  111.  449 ;  Chinncry  v.  Vial!,  5  H.  & 
Wall.  35.  N.  287;  Brierly  t>.  Kendall,  17  Q.  B. 

•  Donald  v.   Suckling,  L.  R.  1  Q.  937 ;   Donald  v.  Suckling,    L.  R.    1 
B.  597;  Steiger  v.  Third  Nat.  Bank,  Q.  B.  597;  Johnston  ».  Stear,  supra; 
2  McCrary,  491.  Halliday  v.   Holgate,   L.  R.   3  Ex. 

*  Johnston  v.  Stear,  15  C.  B.  (N.  299. 

S).,  330.  '  Fowler  r.  Gilman,  13  Met.  269; 

•  First  Nat.  Bank  c.  Bryce,  78  Ky.  Briggs  v.  Boston    R.  R.  Co.,  6  All. 
42;  Donald  v.  'Suckling,  L.  R.  1  Q.  246. 

B.  599;  Johnston  v.  Stear,  15  C.  B. 
(N.  S).,  330. 


THE  FACTOE  AS  PLEDGOR.  551 

trover,  a  tender  of  advances  and  charges  of  the  factor  must 
be  made  before  suit  is  commenced.1  Where  the  act  of 
pledge  by  the  factor  is  in  excess  of  his  advances  and  charges, 
the  owner  of  the  goods  may  recover  from  the  pledgee,  who 
has  converted  the  same,  the  damages  actually  sustained  by 
the  wrongful  pledge  and  conversion  of  the  property,  being 
the  fair  value  of  the  goods,  if  sold  in  the  usual  course  of 
business,  after  deducting  commissions,  and  any  payments  of 
the  factor  in  connection  with  the  special  goods  covered  by 
the  illegal  pledge.9  A  bill  in  equity  will  not  lie  to  enforce 
the  payment  by  a  factor  of  proceeds  of  his  sale,  upon  the 
ground  that  the  moneys  constitute  a  trust  fund,  there  being 
ample  remedy  at  law.1 

§  410.  THE  PLEDGEE,  WITH  NOTICE,  SUBJECT  TO  EQUI- 
TIES.—  Bales  of  cotton  were  consigned  to  factors,  with 
instructions  not  to  sell,  but  to  hold  for  further  directions 
and  better  prices,  and  the  firm  stored  the  cotton  in  a  ware- 
house. The  factors  at  the  time  were  considerably  in  debt 
to  their  principal,  and  had  no  pecuniary  interest  in  the  par- 
ticular shipment.  Shortly  afterwards  the  factors  obtained 
an  advance  from  an  insurance  company  giving  the  cotton- 
press  receipts,  made  deliverable  to  the  order  of  the  company, 
as  collateral  security.  Before  the  maturity  of  the  notes  for 
which  the  receipts  were  given  as  collateral,  the  factors 
failed.  In  a  suit  to  settle  claims  to  the  property  pledged,  to 
vvhich  all  were  parties,  judgment  was  entered  for  the  con- 
signor.4 Goods  consigned  to  a  factor  or  agent  for  sale, 
were  pledged  to  a  bank  aware  of  the  principal's  owner- 
ship, together  with  certain  notes  made  by  the  principal 
to  the  factor  which  it  was  understood  should  be  paid 
from  the  proceeds  of  the  goods.  The  bank,  being  charge- 

1  Steiger  v.  Third  Nat.  Bank,    2  Navulshaw  v.  Brownrigg,  1  Sim.  (N. 

McCrary,  494.  S.)  573;  2  DeG.  M.  &  G.  441. 

*  Alabama  etc.  Manf.  Co.  v.  Third  4  Insurance  Co.  «.  Kiger,  103  U.  S. 
Nat.  Bank,  12  Mo.  App.  352. 

*  Taylor  v.   Turner,    87  111.  303; 


552          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

able  with  notice,  was  required  to  apply  the  proceeds 
of  the  property  to  the  payment  of  the  notes ;  and  the 
defense  thus  arising  was  available  to  an  action  upon  the 
notes  by  the  pledgee  as  indorsee.1  No  rights  or  title  can  be 
acquired  by  a  pledgee,  chargeable  with  negligence,  under  a 
pledge  by  a  consignee,  not  being  a  factor,  and  having  no 
indicia  of  title  nor  possession  of  the  property.* 

Under  statutes  giving  validity  to  the  claims  of  pledgees 
receiving  warehouse  receipts  and  other  indicia  of  property 
from  factors  or  agents  as  collateral  security  for  advances,  the 
like  rule  as  to  notice  prevails.  It  is  an  essential  requisite 
that  the  pledgees,  in  cases  of  misappropriation  of  such  prop- 
erty as  bills  of  lading,  indicia  of  title,  should  have  received 
the  same  in  good  faith  and  without  knowledge  of  the  want 
of  authority  of  the  factor  or  agent  so  to  use  the  same. 
Where  a  pledgee  is  chargeable  with  notice  of  such  facts,  he 
is  not  a  holder  for  value  of  the  property,  nor  of  the  docu- 
ments of  title,  although  he  may  have  paid  value  therefor.' 
The  goods  may  be  recovered  by  the  principal  or  owner  in  an 
action  of  replevin,  or  other  appropriate  action,  without  ten- 
dering repayment  of  the  loan.4  The  lien  of  the  factor  for 
his  charges  is  not  deducted  from  his  demand,  only  in  cases 
where  a  demand  for  such  charges  has  been  made.1 

§  411.  THE  PLEDGEE'S  TITLE  PROTECTED,  AS  AGAINST 
OWNER,  FACTOR,  ETC. — If  the  owner  of  property,  or  of  doc- 
uments of  title  or  of  property,  entrusts  the  same  to  a  third 
person,  a  factor,  so  that  he  appears  to  have  a  good  title  to 
the  same  and  an  apparent  ownership,  he  enables  such  factor 

'St.  Louis  Nat.  Bank  v.  Ross,  9  Banks.  Nelson,  38  Ga.  391;  St.  Louis 

Mo.  App.  399.  Nat.  Bank  v.  Ross,  9  Mo.  App.  399. 

1  Chicago  Taylor,  etc.  Co.  v.  Low-  4  Macky  v.  Dillingcr,  73  Pa.  St.  85; 

ell,  60  Cal.  454.  Stevens  c.  Wilson,  6  Hill,  512. 

•  Macky  v.  Dillinger,  73  Pa.   St.  •  Merchants'  Nat.  Bank  v.  Trcn- 

85  ;  Easton  v.  Clark,  85  N.  Y.  225  ;  holm,  12  Hcisk.  520 ;  Macky  t>.  Oil- 

Wilson  v.  Nason,  4  Bosw.  40;  Ste-  linger,  73  Pa.  St.  85. 
vens  c.Wilson,  6  Hill,  512  ;  First  Nat. 


THE  FACTOR  AS  PLEDQOR.  553 

by  fraud  and  deceit,  to  obtain  from  a  pledgee  an  advance  of 
money  upon  the  credit  of  such  property  or  indicia  of 
property.  If  a  loan  has  been  made  in  good  faith,  and  without 
notice,  the  principal  is  without  defense  as  against  the 
pledgee,  although  the  act  of  pledge  be  a  misappropriation 
and  fraud,  and  not  included  in  the  secret  agreement  of  the 
parties.1  An  indorsement  and  delivery  of  the  documents  of 
title,  symbols  of  property,  must  be  made  at  the  time  of  the 
advance.9  And  where  other  securities  besides  the  bill  of 
lading  are  pledged  by  the  factor  for  advances  made  by  a 
third  person  to  himself,  the  principal  is  entitled  to  require 
in  the  event  of  the  factor's  insolvency,  that  the  other  secu- 
rities shall  be  first  resorted  to,  or  that  he  shall  be  given  a 
lien  thereon  for  the  balance  due  upon  the  special  consign- 
ment.3 The  rights  of  a  bona  fide  pledgee  for  value,  of  doc- 
uments of  title  to  goods,  held  in  a  warehouse  by  a  factor, 
and  receiving  a  warehouse  receipt  acknowledging  the 
pledgee's  title  to  the  cotton,  were  protected  as  against  a 
subsequent  fraudulent  sale  thereof  by  the  factor,  and  deliv- 
ery to  the  purchaser  by  the  warehouseman,  notwithstand- 
ing part  of  the  proceeds  were  paid  by  the  factor  to  the 
pledgees  on  account  of  a  debt  antecedent  to  that  for  which 
the  cotton  was  pledged,  but  without  their  knowledge.4 
And  a  pledge  made  by  a  factor  of  a  warehouse  receipt,  the 
funds  being  advanced  on  the  credit  of  the  representations 
contained  in  the  receipt,  and  of  the  pledger's  possession, 
was  sustained,  although  the  invoice  of  the  goods  would  have 
shown  that  the  goods  belonged  to  the  principal.5 

1  Cartwright  v.  Wilmerding,  24  N.  Broadbent  v.  Barlow,  3  DeG.  F.  &  J. 

Y.   521;  Botts  v.   McCoy,    20  Ala.  570. 

578 ;  Bonito  v.  Mosquero,  2  Bosw.  4  Bott  0.  McCoy,  20  Ala.  578. 

401 ;  Gray  v.  Agnew,  9->  111.  320.  *  Cartwright  «.  Wilmerding,  24  N. 

*  Bonito  v.  Mosquero,  2  Bosw.  410.  Y.  521. 

1  Ex  parte  Alston,  L.  R.  4  Ch.  168; 


Div.  3.—  WAREHOUSE  RECEIPTS. 


CHAPTER  XLV. 

WAREHOUSE  RECEIPTS  AS  COLLATERAL. 

§412.  The  warehouse  receipt  quasi-negotiable. 

413.  Transfer  in  pledge,  with  or  without  indorsement. 

414.  The  pledgee  of  warehouse  receipts,  a  holder  for  value. 

415.  Estoppel  of  owner,  where  third  person  holds  apparent  title. 

416.  Estoppel  of  warehouseman,  by  terms  of  receipts. 

417.  No  title  acquired  by  pledgee,  with  notice  of  fraud  or  felony. 

418.  Pledges  supported,  upon  delivery  of  receipt  and  possession. 

419.  Possession,  actual  or  implied,  necessary  to  valid  pledge. 

420.  Pledge  by  warehouseman  of  receipts  for  his  own  property. 

421.  The  warehouseman  as  pledger,  under  statutory  enactments. 

§  412. — THE  WAREHOUSE  RECEIPT  QUASI-NEGOTIABLE. 
— Except  in  the  rare  cases  where  statutory  enactments  have 
made  warehouse  receipts  negotiable  as  bills  of  exchange  or 
promissory  notes,  a  warehouse  receipt  is  not  a  negotiable 
instrument,  and  its  indorsement  and  delivery,  or  delivery 
merely  where  payable  to  "  holder,"  carries  none  of  the 
effects  as  to  cutting  off  the  defenses  of  the  warehouseman 
against  the  original  holder,  nor  is  there  any  certain  time  at 
which  it  matures,  nor  is  the  title  of  the  person  loaning 
money  upon  it  protected  when  lost  or  stolen,  as  in  the  case 
of  commercial  paper.  Nor  is  the  warehouseman  a  guarantor 
of  the  title  of  property  held  by  him,  and  for  which  he  has 
issued  a  receipt  Issued,  however,  "  subject  to  the  order 

(554) 


WAREHOUSE  RECEIPTS   AS  COLLATERAL.  555 

hereon"  of  the  person  depositing  the  property,  "  and  the 
surrender  of  this  receipt,"  it  becomes  a  representation  on  the 
part  of  the  warehouseman  to  every  successive  holder  for 
value,  under  indorsement  in  blank,  that  he  has  the  property 
in  store,  and  by  a  transfer  of  it  the  title  to  the  property 
and  right  to  its  possession  pass  to  the  indorsee  as  if  the 
property  were  actually  delivered.  The  title  thus  acquired, 
as  between  the  parties  to  the  transfer,  is  such  a  title  as  if 
the  property  itself  were  delivered,  no  better  and  no  worse. 
The  warehouseman  may,  by  his  direct  representations  on . 
the  face  of  the  receipt,  when  in  the  hands  of  an  innocent 
holder  for  value  advanced  upon  the  face  of  its  statements, 
estop  himself  to  show  that  he  has  not  the  property  or  to  set 
np  any  fraud,  or  wrongful  delivery  procured  by  misrepre- 
sentation. In  such  cases,  and  generally  by  reason  of  its 
negotiability  by  transfer  from  hand  to  hand  under  blank 
indorsement,  the  warehouse  receipt  comes  within  the  class 
of  quasi-negotiable  instruments,  equally  with  certificates  of 
stock,  and  bills  of  lading.1 

The  transfer  of  warehouse  receipts,  by  indorsement  and 
delivery  carries  with  it,  in  exceptional  cases,  under  statu- 
tory enactments,  the  privileges  of  negotiability.  The  re- 
ceipt, in  the  hands  of  third  persons,  holders  for  value  ad- 
vanced, without  notice  of  equities,  is  given  the  same  free- 
dom from  antecedent  equities  as  the  favored  instruments  of 
commerce,  bills  of  exchange  and  promissory  notes.  Any 
defense  the  warehouseman  might  have  had  as  against  the 
original  holder  of  the  receipt  is  cut  off  as  against  an  indorsee 
for  value,  without  notice.1  Where  the  provision  is,  that 

1  Insurance  Co.  v.  Kiger,  102  U.  S.  Stewart  v.  Phoenix  Ins.  Co.,  9  Lea, 

352  ;  Canadian  Bank  v.  McCrea,  106  104  ;  Davis  v.  Russell,  52  Cal.  611. 

111.  281  ;    Burton  v.  Curyea,  40  Ib.  *  Gibson  «.  Stevens,  8  How.  384  ; 

320  ;  First  Nat.  Bank  v.  Bates.  1  Fed.  Erie  &  P.  Disp.  Co.  «.  Compress  Co., 

Uep.  702;  McNeil  v.  Hill,  1  Woolw.  6  Mo.  App.    175;  People's  Banks. 

96  ;   Allen  v.  Maury,  66    Ala.  10  ;  Gayley,  92  Pa.  St.  518  ;  s.  c.  12  Phila. 

Gibson  v.  Chillicothe  Bank,  11  Ohio  183  ;  First  Nat.  Bank  «.  Bryce,  78 

St.  311 ;  Yenni  v.  McNamee,  45  N.  Y.  Ky.  42 ;  Greenbaum  v.  Megibben,  10 

614;  Whitlock  v.  Hay,  58  Ib.  484;  Bush,  419. 


5-")G          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

warehouse  receipts  "shall  be  transferable  by  the  indorse- 
ment of  the  party  to  whose  order  such  receipt  may  be  issued, 
and  such  indorsement  shall  be  deemed  a  valid  transfer  of 
the  property  represented  by  such  receipt,  and  may  be  made 
either  in  blank  or  to  the  order  of  another,"  the  element  of 
negotiability  does  not  follow.  The  provisions  of  such 
statutes  are  regarded,  as  in  the  case  of  like  statutes  relating 
to  bills  of  lading,  as  relating  to  the  mode  of  transfer  only, 
and  neither  authorize  nor  imply  that  the  indorser  can 
convey  a  title  to  the  property  represented  by  the  receipt 
which  he  does  not  possess.1 

§  413. — TRANSFER  IN  PLEDGE,  WITH  OR  WITHOUT  IN- 
DORSEMENT.— The  transfer  for  value  as  collateral  -security 
of  warehouse  receipts,  by  indorsement  and  delivery,  or  by 
delivery  only,  where  such  receipts  are  made  payable  to 
"holder"  or  "only  upon  the  return  of  this  receipt,"  vests 
the  legal  title  and  possession  of  the  property  in  the  pledgee, 
and  is  equivalent  to  an  actual  delivery  of  the  property. 
The  warehouseman  at  once,  without  notice,  becomes  the 
bailee  of  the  lender  of  money  upon  the  receipt  lie  has  issued. 
The  title  to  the  property  passes  by  such  transfer  to  the 
pledgee  under  the  law  merchant,  independent  of  any  statute.* 
A  formal  assignment  of  the  document  is  not  required,  as  the 

1  Shaw  v.  Railroad  Co.  101  U.  S.  Cartwright  v.  Wilmerding,  24  N.  Y. 

557;  Canadian  Bank  v.  McCrea.  106  5?1;  St.  Louis  Nat.  Bank  v.  Ross,  9 

111.  281 ;  Burton  v.  Curyea,  40  111.  320.  Mo.  App.  399 ;  Fourth  Nat.  Bank  v. 

*  Cool  v.  Phillips,  66  111.  217 ;  Broad-  Compress  Co.,  11  Ib.  333 ;  Stewart  v. 

well  v.  Howard,  77  Ib.  305;  Burton  v.  Phoenix  Ins.  Co.,  9  Lea.  104 ;  Gibson 

Curyea,  40  Ib.  320;  Lehman  v.  Mar-  v.  Stevens,  8  How.  384;  Insurance 

shall,  47  Ala.  362 ;  Allen  v.  Maury,  Co.  v.  Kiger,   103  U.  S.  353,   357 ; 

66  Ib.  10;  Horn  v.  Baker,  8  Cal.  614;  Harrist;.  Bradley,  2  Dill. 285;  McNeil 

Davis  v.  Russell,  52  Ib.  Gil;  Gibson  v.  Hill,  1  Woolw.  96  ;  Bank  of  Brit- 

«.    Chillicothe  Bank,    11  Ohio  St.,  ish  Columbia  v.  Marshall,  11  Fed. 

811 ;  National  Bank  v.  Walbridge,  19  Rep.  19  ;  Hice  v.  Cutler,  17  Wis.  351; 

Ib.  424;  Motliam  ».  Hoyer,  5  Denio.  Whitney  v.  Tibbitts,  Ib.  359  ;  Lick- 

629 ;  Gardner  v.   Suydam.  7  N.  Y.  barrow  v.  Mason,  1  Sm.  L.  C.  pt.  2, 

857;  Wilkes  v.  Ferris,  4  Johns.  355  ;  1197. 
Waldron  c.   Romaine,  22  Ib.  368 ; 


WAREHOUSE  RECEIPTS   AS   COLLATERAL.  557 

indorsement  of  itself  sufficiently  indicates  the  intention  of 
the  pledger  to  pass  the  title  and  possession.1  Such  indorse- 
ment and  delivery  transfers  the  general  property  in  the 
goods  to  the  pledgee  as  absolutely  as  would  a  bill  of  sale.9 
When  once  indorsed  in  blank,  such  receipts  pass  from  hand 
to  hand  by  delivery  merely.8  The  delivery  of  a  warehouse 
receipt,  without  indorsement,  as  collateral  security,  is  suffi- 
cient to  transfer  the  title  and  possession  of  the  property  re- 
presented, if  such  be  the  intention  of  the  parties.4  Even 
where  in  the  language  of  a  statute  such  receipts  "  may  be 
transferred  by  indorsement,"  the  provision  is  regarded  as 
permissive  only,  and  is  without  effect  upon  the  right  to 
transfer  by  delivery  existing  independently  of  the  statute.5 
Mere  delivery  under  a  statute  requiring  indorsement  may 
constitute  a  pledge,  but  none  of  the  advantages  of  negotia- 
bility will  attach  to  such  transfer,  although  the  receipt  be 
payable  to  "  bearer.'"  No  privilege  is  conferred  upon  a 
pledgee  under  the  civil  code  of  Louisiana  by  the  assignment 
of  a  warehouse  receipt,  in  the  absence  of  an  express  contract 
that  the  property  is  given  in  pledge  to  secure  the  payment 
of  a  specified  debt,  the  amount  of  which  is  stated  ;7  and, 
although  warehouse  receipts  are  made  "  negotiable  "  under 
the  Civil  Code,  a  warehouseman  is  not  regarded  as  assuming 
the  liabilities  of  a  guarantor  of  the  title  of  the  property 
described  in  receipts  issued  over  his  signature.8 

§  414.    THE  PLEDGEE  OF    WAREHOUSE   RECEIPTS,   A 
HOLDER  FOR  VALUE. — The  pledgee  of  warehouse  receipts, 

1  Gibson  v.  Stevens,  8  How.  384.  •  St.  Louis  Nat.  Bank  v.  Ross,  9 

(Taney,  C.  J.)  Mo.  App.  399.    Indorsement  is  re- 

*  McNeil  v.  Hill,  1  Woolw.  96.  quired  in  Alabama  under  Code  § 

*  Davis®.  Russell,  52  Cal.  611.  2099.    Allen  v.  Maury,  66  Ala.  10; 
4  Whitney  v.  Tibbetts,  17  Wis.  359 ;  Lehman  v.  Marshall,  47  Ib.  362. 

Merchants  Bank  v.  Hibbard,  48  Mich.  T  Martin  v.  Creditors,  15  La.  Ann. 

118 ;  Herr  v.  Zarker,  8  Cal.  603  ;  Gib-  165 ;  Cater  v.  Merrill,  14  Ib.  375. 

son  v.  Stevens,  8  How.  384 ;  Rice  v.  •  Insurance  Co.  v.  Kiger,  103  U.  S. 

Cutler,  17  Wis.  351.  352,  356. 
4  Rice  v.  Cutler,  17  Wis.  351. 


558          QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

receiving  the  same,  with  or  without  indorsement,  as  collat- 
eral upon  a  bona  fide  loan  or  discount  of  commercial  paper, 
stands  in  the  same  privileged  position  as  a  bona  fide  pur- 
chaser for  value  of  like  receipts.  An  indefeasible  title  to 
the  property  represented  by  the  receipts  is  vested  in  the 
bona  fide  pledgee  for  value,  and  he  is  entitled  to  its  posses- 
sion. His  title  thus  acquired  in  good  faith,  for  value 
advanced  upon  the  faith  and  credit  given  to  the  apparent 
legal  title  and  right  to  possession  of  the  pledger,  is  protected 
even  as  against  the  real  owner,  although  the  act  of  pledge 
by  the  person  entrusted  with  the  indicia  of  title  represent- 
ing the  property,  be  a  fraud  as  against  an  unpaid  vendor. 
Such  innocent  pledgee  is  a  bona  fide  holder  for  value,  in  the 
usual  course  of  business ;  and  has  something  more  than  a 
mere  lien  for  his  advances,  taking  the  title  to  the^property 
and  the  right  to  its  actual  possession.  An  equitable  interest 
only  in  the  property  remains  in  the  pledger,  who  is  entitled 
to  a  surrender  of  the  indicia  of  title  upon  payment  of  the 
loan  or  debt,  and  to  any  surplus  arising  from  the  sale  of  the 
property,  upon  default,  after  payment  of  the  debt.1  The 
pledgee  of  warehouse  receipts  is  under  no  obligation  to 
notify  the  warehousemen  of  the  transfer  to  him  of  such 
receipts  as  collateral  security.  The  representation  is  usually 
made  upon  the  face  of  warehouse  receipts  that  the  prop- 
erty described  will  not  be  delivered  until  the  surrender  of 
the  receipt  and  its  cancellation.  The  rule  applies  to  third 
persons,  creditors  of  the  pledger,  seeking  by  legal  process  to 
obtain  possession  of  property  represented  by  such  receipts, 
when  the  same  have  passed  into  the  hands  of  pledgees  for 
value  advanced  in  good  faith  upon  the  credit  of  such  repre- 
sentations.* 


1  Gibson  «.  Stevens,  8  How.  384 ;  841 ;  Root  v.  French,  13  Wend.  573 ; 

Barnard  v.  Campbell,  58  N.  Y.  73 ;  Hoffman  ».  Noble,  6  Met.  68. 

Disbrow  v.  McDonald,  5  Bosw.  130 ;  •  First  Nat.  Bank  ».  Bates,  1  Fed. 

Winne    t>.    McDonald,    39    N.    Y.  Rep.  702;  19  A.  L.  R.  (N.  S.)  565. 
233;    Culdvvcll  v.  Bartlett,  3  Duer, 


WAREHOUSE  RECEIPTS  AS  COLLATELAL.          559 

§  415.  ESTOPPEL  OP  OWNER,  WHERE  THIRD  PERSON 
HOLDS  APPARENT  TITLE. — The  rules  of  equitable  estoppel 
are  invoked  in  favor  of  the  innocent  pledgee  of  warehouse 
receipts,  receiving  the  same  from  a  vendee  of  the  property, 
for  a  valuable  consideration,  advanced  on  the  credit  of  such 
receipts,  in  the  usual  course  of  business.  The  rule  is  applied 
where  the  vendor,  although  desirous  of  retaining  a  lien, 
has  been  induced  by  misrepresentations  to  entrust  the 
vendee  with  the  indicia  of  title  and  possession,  so  that  the 
latter  is  able  to  act  as  the  apparent  absolute  owner  of  the 
property,  the  pledgee  not  being  chargeable  with  notice  of 
the  equities  of  the  owner.  Under  such  circumstances  "  there 
is  no  principle  upon  which  it  can  be  held  that  the  loss, 
which  must  fall  somewhere,  should  fall  upon  an  innocent 
pledgee,  rather  than  upon  the  vendor  who  put  it  in  the  power 
of  the  pledgor  to  hold  himself  out  as  the  sole  owner,  and 
alone  entitled  to  the  possession  of  the  goods,  under  circum- 
stances which  must  have  deceived  the  most  vigilant." !  The 
like  rule  of  equitable  estoppel  in  favor  of  innocent  pledgees, 
receiving  warehouse  receipts,  or  other  indicia  of  title,  to 
property  and  its  possession,  from  an  apparent  owner,  in 
good  faith,  in  the  usual  course  of  trade,  for  value  and  with- 
out notice,  is  incorporated  into  the  California  code.  A  bona 
fide  pledgee,  holding  for  value,  without  notice,  under  an 
unauthorized  use  of  warehouse  receipts,  indorsed  in  blank, 
as  collateral  security  for  an  antecedent  debt  by  one  entrusted 
with  the  indicia  of  title  so  as  to  appear  as  the  owner  of  the 
property  and  entitled  to  its  possession,  is  protected.9  A 
pledgee  himself  may,  by  his  neglect  or  through  misplaced 
confidence,  bring  himself  within  the  rules  of  equitable  estop- 
pel, as  where  he  has  permitted  the  pledgor  to  take  posses- 
sion of  the  property,  and  to  obtain  warehouse  receipts  for 
the  same.  In  such  cases  the  pledgee  is  estopped  to  set  up 
his  title  as  against  a  subsequent  pledgee,  receiving  the 

'Fourth  Nat.  Bank  v.  Compress         »  Davis  0.  Russell,  52  Cal.  611.  Civ. 
Co.  11  Mo.  App.  333,  343.  Code,  Cal.  §  2991. 


560          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

receipts  in  good  faith  for  value  advanced  on  the  credit  of  his 
title  and  possession.1  The  like  rule  applies  where  the 
owner  of  property  allows  a  party  to  take  warehouse  receipts 
in  his  own  name,  being  deceived  by  his  fraudulent  conduct, 
and  the  receipts  are  negotiated  as  collateral  security  to  a 
bona  fide  pledgee,  for  value,  without  notice  of  the  fraud.* 

§416.  ESTOPPEL  OF  WAREHOUSEMAN,  BY  TERMS  OP 
RECEIPTS. — A  warehouseman,  who  has  issued  a  receipt  stat- 
ing that  certain  goods  therein  mentioned  are  in  store  at  his 
warehouse,  and  deliverable  only  upon  surrender  of  the 
receipt,  is  not  permitted  to  deny  such  statements,  where, 
upon  the  credit  of  the  representations  contained  in  such 
receipt,  a  pledgee  has  advanced  value,  in  good  faith,  with- 
out notice.8  The  rules  of  equitable  estoppel  were  enforced 
where,  in  fact,  no  property  had  ever  been  received  by  the 
warehouseman  as  stated  in  the  receipt,  but  after  issue,  as 
collateral  security,  the  receipt  was  transferred  by  indorse- 
ment and  delivery  to  a  third  person  for  a  bona  fide  advance 
made  on  the  credit  of  the  representations  contained  in  the  re- 
ceipt, and  without  notice  of  the  real  transaction,  as  between 
the  original  parties.  The  pledgee  was  allowed  to  recover  from 
the  warehouseman  the  value  of  the  goods  as  recited  in  the 
fraudulent  receipt.4  Nor  will  a  warehouseman  be  permitted 
to  explain  the  issue  of  a  receipt,  where  there  has  been  a 
failure  to  deliver  the  property  described,  on  demand,  as 
against  a  bona  fide  pledgee  for  value  advanced  upon  the 
credit  of  such  representations,  without  notice  of  any  equities. 
The  pledgee,  receiving  the  receipt  by  indorsement  and 
delivery,  has  a  right  to  act  upon  the  stipulation  contained 
on  the  face  of  the  receipt  that  delivery  of  the  property  will 
be  made  only  upon  its  surrender.  The  receipt  becomes,  as 

1  Allen  ».  Maury,  66  Ala.  10.  96  ;  Whitlock  v.  Hay,  58  N.  Y.  484 ; 

*  Hazard  t>.  Fiske,  83  N.  Y.  287,  Stewart  v.  Phoenix  Ins.  Co.  9  Lea, 
296.  104. 

*  First  Nat.  Bank  v.  Bates,  1  Fed.  «  McNeil ».  Hill,  1  Woolw.  96. 
Rep.  702  ;  McNeil  9.  Hill,  1  Woolw. 


WAREHOUSE  RECEIPTS  AS   COLLATERAL.  561 

between  the  pledgee,  advancing  money  on  the  faith  of  its 
representations,  and  the  warehouseman,  a  contract  not  to  be 
explained  or  contradicted  by  parol,  but  to  be  enforced,  upon 
breach,  in  favor  of  the  innocent  pledgee  for  value,  who 
otherwise  wilJ  suffer  loss.1  A  warehouseman  issued  and 
delivered  a  receipt ,  "  Received  of  A  5,000  bushels  No.  2 
white  mixed  corn,  to  be  loaded  into  sacks,  tickets  for  which, 
when  loaded,  will  be  sent  down  promptly."  A  took  the 
receipt  to  a  bank,  and  borrowed  money  on  it  as  collateral. 
He  then  ordered  the  grain  to  be  shipped,  which  was  done 
by  the  warehouseman,  who  delivered  the  receipt  received 
from  the  carrier  to  A,  upon  which  he  obtained  a  bill  of  lad- 
ing. He  again  went  to  the  same  bank,  and  obtained  a  dis- 
count of  a  draft,  attaching  the  bill  of  lading  as  collateral 
security,  the  bank  having  no  notice  that  the  same  grain  was 
covered  by  the  receipt  and  bill  of  lading.  The  fraud  being 
discovered,  and  the  goods  appropriated  to  meet  the  bill  of 
lading,  the  warehouseman  was  estopped  to  set  up  any 
defense  as  to  the  receipt  issued,  to  the  injury  of  the  pledgee 
advancing  money  in  good  faith  upon  the  credit  of  the  repre- 
sentations contained  in  the  receipt.* 

§    417.      NO  TITLE  ACQUIRED   BY   PLEDGEE,   WITH   NOTICE 

OF  FRAUD  OB  FELONY. — The  real  owner  of  property  who 
has  been  induced  to  deliver  the  actual  possession  of  such 
property,  or  of  the  indicia  of  title,  as  a  warehouse  receipt,  to 
a  vendee,  by  reason  of  his  fraudulent  misrepresentations, 
may  recover  such  property  or  indicia  of  title  from  one  who  is 
chargeable  with  notice  of  the  fraud,  or  who  has  not  made  an 
advance  or  parted  with  consideration  upon  the  faith  of  such 
possession  of  property  or  of  documents  of  title,  provided 
such  owner  or  vendor  asserts  his  title  within  a  reasonable 
time,  before  the  rights  of  innocent  persons,  pledgees  for 

1  Stewart  v.  Phoenix  Ins.  Co.  9  Lea,          *  Union  Savings  Assn.  v.  St.  Louis 
104.  Grain  Elev.  Co.  11  Mo.  App.  596. 


562         QUASI-NEGOTIABLE   COLLATERAL   SECURITIES. 

value,  have  intervened.1  The  indefeasible  title  of  the  ven- 
dor of  property  represented  by  warehouse  receipts,  is  not 
defeated,  where  the  same  are  received  by  a  bank  as  collat- 
eral for  an  overdrawn  account,  where*  the  pledgee,  a  bank, 
is  chargeable  with  notice  that  the  sale  of  the  property  cov- 
ered by  such  receipts  had  been  made  for  cash,  and  there  was 
enough  to  put  a  prudent  person  upon  inquiry  as  to  the  title 
of  the  pledgor  to  the  property.  Where  a  check  of  the 
pledgor  is  given  in  payment,  and  payment  is  refused  in  the 
Clearing  House,  and  upon  the  same  day,  upon  another  pre- 
sentation by  the  vendor,  a  second  refusal  to  pay  is  made,  or 
to  return  the  receipts,  the  unpaid  vendor  may  bring  an  action 
of  trover  against  the  pledgee.  Nor  is  it  material  that  the 
pledgee  holds  only  the  indicia  of  title,  the  warehouse  re- 
ceipts, and  not  the  property,  as  the  receipts  stand  in  the 
place  of  the  property  which  they  represent.  The  unpaid 
vendor  is  entitled  to  his  action  of  trover  against  the  pledgee, 
the  damages  to  be  the  value  of  the  goods.1 

A  pledgee  of  warehouse  receipts  can  acquire  no  title, 
where  he  receives  the  same  chargeable  with  notice,  express 
or  implied,  that  the  use  of  such  receipts  as  collateral  security 
is  a  misappropriation  by  the  person  intrusted  with  the  doc- 
uments of  title,  or  that  the  property  described  has  never 
been  received  into  the  warehouse  issuing  such  receipt,  al- 
though such  pledgee  has  advanced  value.  Under  such  cir- 
cumstances, as  where  the  unpaid  vendor  seeks  to  recover 
from  a  pledgee  chargeable  with  notice  of  the  non-payment 
of  the  purchase  money,  the  pledgee  takes  only  the  title  of 
his  fraudulent  assignor,  which  is,  in  fact,  no  title  at  all.3 
Nor  can  an  innocent  pledgee  for  value,  who  advances  money 
upon  a  warehouse  receipt  which  has  been  feloniously  ob- 
tained by  robbery  or  larceny,  acquire  any  rights  or  title, 
where  such  receipts  are  not  negotiable,  as  against  the  real 

1  Barnard  v.  Campbell,  58  N.  Y.  73;  »  Canadian  Bank  «.  McCrea,   108 

Root  t>.    French,    18    Wend.    573;  111.281. 

Mowry  v.  Walsh,  8  Cow.  238  ;  Hoff-  •  Merchants'  Bank  t>.  Colt,  15  Barb, 

man  v.  Noble,  6  Met.  GS.  506  ;  Whitlock  v.  Hay,  58  N.  Y.  484. 


WAREHOUSE   RECEIPTS   AS    COLLATERAL.  563 

owner.  Receipts  were  issued  payable  to  "  bearer,"  and  the 
pledgee  inquired  of  the  party  issuing  the  same  if  they 
were  good,  and  was  told  they  were.  The  receipts  were 
unindorsed,  and  therefore  not  negotiable  under  a  statu- 
tory provision  requiring  indorsement  in  every  case.  The 
receipts  were  pledged  by  a  clerk  who  had  stolen  the 
same,  and  in  an  action  for  the  possession  of  the  goods, 
as  between  the  real  owner  and  the  pledgee,  the  title  of  the 
former  was  preferred.1  Nor  is  a  pledge  of  warehouse  re- 
ceipts by  a  factor,  unauthorized  and  in  violation  of  his  duty, 
supported,  as  against  his  principal,  although  the  recovery 
will  be  subject  generally  to  a  recoupment  in  favor  of  the 
pledgee  to  the  extent  of  the  valid  lien  of  the  factor."  The 
pledgee  of  warehouse  receipts,  except  where  the  same  are 
made  negotiable,  can  acquire  no  greater  rights  than  his  as- 
signor, where  the  transfer  is  made  by  one  without  authority 
or  in  violation  of  a  statute.8  And  a  pledgee  of  warehouse 
receipts,  the  goods  being  unidentified,  and  part  of  a  much 
larger  quantity,  is  entitled  to  no  preference  over  holders  of 
other  receipts.4 

§  418.  PLEDGES  SUPPORTED  UPON  DELIVERY  OF  RECEIPT 
AND  POSSESSION. — Where  goods  are  stored  in  the  warehouse 
of  a  third  person,  the  indorsement  and  delivery  of  the  re- 
ceipt therefor  by  the  owner  to  a  pledgee,  and  notice  of  the 
transfer  to  the  warehouseman  (especially  if  the  latter  as- 
sents), makes  him  agent  for  the  pledgee,  and  is  a  good  con- 
structive delivery,  because  it  changes  the  possession  and 
dominion.5  A  warehouse  entry  having  been  made  at  a  cus- 

I  Erie  &Pac.  Dispatch  Co.  v.  Com-  183;  aff.  92  Pa.  St.  518;  Erie  &  Pac. 
press  Co.  6  Mo.  App.  175;  Fourth  Disp.  Co.  v.  Compress  Co.  6  Mo.App. 
Nat.  Bank  v.  Compress  Co.  11  Ib.  175;  Fourth  Nat.  Bank  v.  Compress 
333.  Co.  11  Ib.  333. 

II  First  Nat.  Bank  v.  Bryce,  78  Ky.  4  Sawyer  v.  Taggart,  14  Bush,  727; 
42 ;  Merchants'  Nat.  Bank  v.  Tren-  May  v.  Hoagland,  9  Ib.  172. 

.holm,  12  Heisk,  520.  •  DeWolf  v.  Gardner,  12  Cush.  19. 

1  People's  Bank  v.  Gayley,12  Phila. 


564          QUASI-NEGOTIABLE  COLLATERAL  SECURITIES. 

torn  house,  a  receipt  was  issued  entitling  the  holder  to  with- 
draw the  goods.  The  transfer  of  the  receipt  as  collateral 
security  vested  the  title  to  the  property  and  the  right  of 
possession  in  the  pledgee.  Receiving  the  indicia  of  title  in 
good  faith,  for  value  and  without  notice,  the  pledgee  is  not 
chargeable  with  notice  of  the  contents  nor  required  to  in- 
spect the  warehouse  registry  before  advancing  his  money 
upon  the  faith  of  the  representations  of  the  receipt.1  Plac- 
ing goods  in  a  cellar  of  the  warehouse  of  the  pledger,  hired 
for  the  purpose  by  the  pledgee,  is  a  sufficient  delivery.* 
Where  property  is  stored  in  a  warehouse,  and  receipts  issued 
therefor,  to  a  person  who  advances  money  in  good  faitli  under 
a  special  contract,  providing,  among  other  things,  that  the 
property  shall  in  case  of  flood  be  at  the  risk  of  the  "owner," 
the  transaction  is  a  pledge,  and  not  a  mortgage,  there  being 
no  transfer  of  the  title.  The  pledgee  is  not  the  "owner," 
nor  the  goods  at  his  risk.*  The  title  of  a  pledgee  of  ware- 
house receipts,  taken  as  collateral  security  for  advances, 
who  had  entered  into  possession  of  the  property,  surrender- 
ing the  receipts,  and  then  left  the  same  with  the  pledgor  so 
that  the  property  might  be  shipped  at  once  on  account  of 
the  pledgee,  is  not  affected  by  an  attempt  of  a  creditor  of  the 
pledgor  to  levy  upon  the  property  while  in  process  of  ship- 
ment. Having  obtained  actual  possession,  the  re-delivery 
of  the  receipts  for  the  purpose  of  shipment,  or  other  special 
purpose,  was  allowable.4 

§  419.  POSSESSION,  ACTUAL  OR  IMPLIED,  NECESSARY  TO 
VALID  PLEDGE. — A  factor,  having  property  belonging  to  his 
principal  stored  in  his  building,  obtained  a  loan  from  a  bank 
for  his  own  purposes,  upon  giving  a  receipt  stating  that 
such  property  had  been  placed  "  in  the  control  and  posses- 
sion of  said  bank,  to  be  used  by  said  bank  as  its  property  for 

1  Cartwright  v.  Wilmcrding,  24  N.  *  Bank  of  B.  Columbia  v.  Marshall, 

Y.  521.  11  Fed  Rep.  19,  26. 

*  Sharp  v.  Philadelphia  Ware-  4  Nelson  v.  Mclntyre,  1  Bradw. 

bouse  Co.  9  Rep.  572.  603. 


WAREHOUSE  RECEIPTS   AS   COLLATERAL.  565 

the  re-imbursement  of  the  loan,  and  if  paid  when  due,  or  be- 
fore said  property  is  disposed  of  by  the  said  bank  for  its  re- 
imbursement, then  to  be  returned  unto "  the  pledger.  As 
against  the  owner,  the  pledge  was  not  sustained,  there  being 
a  want  of  possession,  and  the  pledgee  being  chargeable  with 
constructive  notice  that  the  pledgor  was  a  factor,  whose 
duty  was  to  sell,  and  who  had  no  authority  to  pledge  for  a 
loan  to  himself  individually.1  And  where  a  receipt  was  is- 
sued by  a  custodian,  without  authority  so  to  do,  and  the 
same,  indorsed,  was  delivered  by  an  agent  to  a  person  who 
advanced  funds  in  good  faith,  upon  the  representations  of 
such  receipt,  the  transfer,  although  sustained  as  against  the 
principal,  was  defeated  as  against  bona  fide  purchasers  for 
value  from  the  principal  who  had  obtained  possession  of  the 
goods  upon  valid  receipts.*  Where  indorsement  of  ware- 
house receipts  to  transfer  title  is  required  by  a  statute,  a 
mere  equitable  title  is  received  by  a  pledgee  receiving  re- 
ceipts unindorsed,  as  though  he  were  a  pledgee  without  pos- 
session. Such  title  is  subject  to  be  defeated  by  a  sale  to  a 
bona  fide  purchaser  for  value,  without  notice  of  the  pledge.* 
And  where  a  pretended  warehouse  receipt  is  executed  by  a 
debtor  to  his  creditor  of  property  as  security,  the  property 
remaining  in  the  possession  of  the  debtor,  who  is  not  a  ware- 
houseman, the  receipt  is  void  as  against  other  creditors  ob- 
taining liens  by  legal  process.4 

§  420. — PLEDGE  BY  WAREHOUSEMAN  OF  RECEIPTS  FOR 
HIS  OWN  PROPERTY. — In  the  absence  of  statutory  enact- 
ment, a  warehouseman  having  property  of  his  own  in  his 
warehouse,  may  issue  receipts  therefor,  as  in  other  cases, 
and  vest  title  to  the  property  in  other  persons  by  the  trans- 
fer of  such  receipt,  by  indorsement  and  delivery,  or  by  the 
delivery  of  receipts  made  directly  in  the  name  of  the  person 

1  First  Nat.   Bank    v.  Nelson,  38  z  Troutman  ».  People's  Bank,  12 

Geo.  391.  Phila.  276;  People's  Bank  v.  Gayley, 

9  People's     Bank    v.    Gayley,   12  12  Ib.  183;  s.  c.  92  Pa.  St.  518. 

Phila.  183  ;  aff.  92  Pa.  St.  518.  *  Thome  v.  Bank,  37  Ohio  St.  254. 


566          QUASI-NEGOTIABLE   COLLATERAL  SECURITIES. 

to  whom  the  property  is  to  be  transferred.  A  warehouse- 
man may  use  such  receipts  as  collateral  to  secure  the  pay- 
ment of  loans  to  himself  or  his  own  indebtedness.1  It  is  no 
objection  that  the  warehouse  receipt  thus  issued  is  the  ven- 
dor's or  pledger's  own  receipt,  or  that  he  still  remains  in 
possession  of  the  property.  The  fact  of  giving  such  receipt 
converts  the  vendor  into  a  warehouseman,  and  such  holding 
of  possession  in  another  capacity  is  a  good  delivery.  The 
title  of  a  pledgee  for  value  advanced  upon  a  receipt  so 
issued,  is  sustained  as  between  the  parties.9  A  receipt  for 
property  stored  in  the  yard  of  the  debtor,  not  strictly  a 
warehouse  receipt  within  the  terms  of  the  law,  was  given  as 
collateral  for  a  loan,  made  in  good  faith.  The  pledgee  sub- 
sequently learning  of  the  impending  insolvency  of  the  debtor, 
took  actual  possession  of  the  property,  and  the  legal  title 
thus  obtained  was  sustained  as  against  the  pledger,  and  his 
assignee  in  bankruptcy.1 

§421. — THE  WAREHOUSEMAN  AS  PLEDGOR,  UNDER 
STATUTORY  ENACTMENTS. — The  right  of  a  warehouseman  to 
issue  receipts  for  collateral  security  upon  his  own  property, 
is  made  the  subject,  in  a  few  states,  of  statutory  regulation. 
In  cases  arising  in  these  states,  the  terms  of  the  statutes 
control.  Such  receipts  are  required  generally  to  be  issued 
only  "  fora  consideration,"  which  is  construed  as  prohibiting 
the  issue  of  receipts  by  warehousemen  upon  their  own  prop- 
erty. The  warehouseman  remaining  in  possession  of  the 
rn'operty,  no  contract  of  pledge  can  be  made.  Such  receipts, 
not  being  within  the  statute,  and  being  invalid,  their  use  as 
collateral  security  for  a  loan  to  the  warehouseman  is  not 
supported,  as  against  judgment  creditors,  or  assignees  in  in- 

1  Merchants'  Bank  v.  Hibbard,  48  Horn  v.  Barker,  8Cal.  614;  National 

Mich.  118  ;  Cochran  v.  Rippcy.    13  Bank  v.  Walbridge,  19  Ohio  St.  424; 

Bush,  495;  Greenbaum  v.  Megibben,  Shcphardson  v.  Gary,  29  Wis.  24,  4:>. 

10  Ib.  419;  Broadwcll  v.  Howard, 79  *  DeWolf  v.  Gardner.  12Cush.  19. 

111.  305;  Cool  v.  Phillips,  66  Ib.  270;  »  Sherman  v.  Traders'  Nat.  Bank. 

Parshall  v.  Eggert,  54  N.  Y.  18,  21  ;  9  Biss.  216. 


WAREHOUSE   RECEIPTS   AS   COLLATERAL.  567 

solvency.1  This  rule  was  applied  where  the  owner  of  prop- 
erty stored  in  a  manufactory  of  which  he  was  the  owner, 
but  which  had  its  distinctive  name,  procured  the  superin- 
tendent to  issue  a  receipt  for  property,  upon  the  indorse- 
ment of  which  as  collateral  a  loan  was  obtained  from  a  bank. 
No  possession  was  taken,  nor  was  the  receipt  recorded  ;  and 
an  execution  was  levied  upon  the  property  by  a  creditor  of 
the  owner.  He  subsequently  sold  some  of  the  property,  on 
account  of  the  bank,  to  a  purchaser  for  value  without  notice  ; 
but  the  property  was  re-taken  by  the  officer.  Upon  an  ac- 
tion against  the  officer,  the  levy  was  sustained.  As  between 
the  parties  the  receipt  was  a  nullity ;  and  as  against  third 
parties,  the  want  of  change  of  possession,  notwithstanding 
a  pretended  secret  change  of  ownership,  and  the  failure  to 
record  the  assignment,  defeated  the  title  of  the  pledgee.5 
In  Iowa,  a  warehouseman  is  not  allowed,  by  statutory  enact- 
ment, to  issue  receipts  upon  his  own  property  for  the  pur- 
pose of  using  the  same  as  collateral  security.8  The  same 
statute  is  in  force  in  Ohio,  but  a  distinction  as  to  its  appli- 
cation was  taken  where  advances  had  been  made,  under  a 
contract,  made  previously  and  still  subsisting,  for  the 
purchase  by  a  warehouseman  of  property,  to  be  stored  in  his 
warehouse,  the  warehouse  receipts  being  issued  in  the  name 
of  the  party  advancing  the  money,  who  upon  the  sale  of  the 
property  was  to  retain  the  amount  of  his  advances  and  com- 
missions. Warehouse  receipts  issued  in  good  faith  under 
such  a  contract,  are  supported  as  against  legal  process  by 
creditors  of  the  warehouseman.  The  legal  title  and  right 
to  possession  having  passed  to  the  party  making  advances 
in  good  faith,  the  merely  equitable  interest  of  the  warehouse- 
man in  the  proceeds  was  not  subject  to  legal  process.4 

1  Adams  v.  Merchants'  Nat.  Bank,  Iowa  code,  §2171  ;  Tenni  v.  McNa- 

9Biss.  396;  In  re  Gurney,  7  Ib.  414 ;  mee,  45  N.  Y.  614,  construing  the 

Miller  v.  Jones,  15  N.  B.  R.  150;  Al-  New  York  statute  to  like  effect, 

len  «.  Massey,  17  Wall.  351.  4  Gibson  v.   Chillicothe  Bank,  11 

*  Yenni  «.  McNamee,  45  N.Y.  614.  Ohio  St.  811. 

8  Sexton  v.  Graham,  53  Iowa,  181; 


PART  V. 


NON-NEGOTIABLE  COLLATERAL  SECURITIES. 


CHAPTER  XLIV. 

CHOSES  IN  ACTION  AS  COLLATERAL. 

§422.     Non-negotiable  choses  and  equitable  assignments  as  collateral  secu- 
rity. 

423.  Equitable  assignments  of  funds  as  collateral. 

424.  Assignments  in  part  of  such  securities. 

425.  The  pledge  of  non-negotiable  collaterals,  with  or  without  indorse- 

ment. 

426.  The  assignment  in  pledge  of  insurance  policies. 

427.  The  pledgee's  lien,  upon  payment  of  premiums. 

428.  Pledges  of  non-negotiable  collaterals,  without  notice  to  debtor. 

429.  Priority  of  assignees  of  funds,  upon  giving  notice. 

430.  The  debtor's  liability,  with  notice  of  assignment. 

431.  No  title  acquired  by  pledgees,  with  notice  of  fraud. 

§422. — NON-NEGOTIABLE  CHOSES  AND  EQUITABLE  AS- 
SIGNMENTS AS  COLLATERAL  SECURITY. — The  use  of  non- 
negotiable  choses  in  action  and  equitable  assignments  of 
funds  as  collateral  securit}',  including  the  pledge  of  insur- 
ance policies,  leases,  interests  under  wills,  orders  on  funds, 
equitable  assignments  of  part  interests,  city  and  other  certi- 
ficates, savings  bank  books,  chattel  mortgages,  memberships 
of  stock  exchanges,  unpaid  calls  on  stocks,  interests  under 

(568) 


CHOSES   IN   ACTION  AS   COLLATERAL.  569 

contract,  and  other  choses  in  action,  affords  the  pledgee  less 
available  security  than  either  negotiable  or  quasi-negotiable 
collateral  securities.  Unless  the  pledger  or  owner  has,  by 
his  affirmative  acts  or  omissions,  or  neglects,  brought  him- 
self within  established  rules  relative  to  equitable  estoppel, 
a  pledgee  receiving  such  non-negotiable  choses  in  actions 
or  equitable  assignments  of  funds  as  collateral  security,  for 
a  valuable  consideration,  in  good  faith,  holds  them  subject 
to  all  equities  existing  at  the  time  of  the  transfer,1  and  to 
all  defenses  valid  as  to  the  original  parties.9  The  non-nego- 
tiable chose  in  action  itself  is  open  to  all  equities,  and  sub- 
ject to  all  defenses  growing  out  of  the  original  transaction, 
in  the  hands  of  any  assignee,  however  remote.3 

The  pledgee  of  a  non-negotiable  chose  in  action  is,  how- 
ever, not  subject  to  equities  or  rights  arising  subsequently 
to  its  assignment ; 4  nor  to  equities  arising  from  other  and 
independent  transactions  between  the  original  parties;5  nor 
in  a  case  of  an  assignment  of  a  judgment,  will  an  equity  be 
allowed  when  not  asserted  by  one  of  the  parties  to  such 
judgment,  or  his  assignee  or  representative.'  The  only 
fraud,  as  to  the  instrument,  permissible  to  be  shown  at  law 

1  Harter  v.  Coleman,  L.  R.  19  Ch.  K  Y.  442  ;  Combes  v.  Chandler,  33 

D.  630,  634  ;  Watson  v.  Mid  Wales  Ohio  St.  178;  Burtis  v.  Cook,  16  la. 

Ry.  Co.  L.  R.  2  C.  P.  593;  Cowdrey  v.  194;  Isctt  ».   Lucas,  Ib.  507  ;  In  re 

Vandenbrough,  101  U.  S.  522  ;  Jud-  Agra  Bank,  L.  R.  2  Ch.   39,   397 ; 

son  v.  Corcoran,  17  How.  612;  Wick-  Graham  v.  Johnson,  L.  R.  8  Eq.  36  ; 

ham?;.  Morehouse,  16  Fed.  Rep.  324;  Piper  v.  Piper,  L.  R.  1  Ch.  D.  90  ; 

Bush  v.  Lathrop,  22  N.  Y.  535  ;   In-  Ord  v.  White,  3  Beav.  357. 

graham  v.  Disborough.  47  Ib.  421  ;  3  Trustees    of    Union    College    v. 

Baker  v.  Bishop  Hill  Colony,  45  111.  Wheeler,   61   N.  Y.  114  ;    Cutts  v. 

264  ;  Irish  t>.  Sharp,  89  Ib.  26;  Chick-  Guild,    57    Ib.    229;     Combes    v. 

cring  v.  Fullerton,  90  Ib.  520 ;  Jasper  Chandler,  supra;    Ord  v.  White,  3 

County  v.  Tavis,  76  Mo.  13;  Cutts  v.  Beav.  357. 

Gould,  57  N.  Y.  229 ;  Storey  v.  Dut-  4  George  v.  Tail,  102  U.  S  564  ; 

ton,  46  Mich.  539  ;  Davis  v.  Beck-  Harter  v.  Coleman,  L.  R.  19  Ch.  D. 

stein,  69  N.  Y.  442.  630. 

9  Moore  v.  Metropolitan  Nat.  Bank.  slsett  v.  Lucas,    19    Iowa,    507; 

55  N.  Y.  41 ;  Wickham  v.  Morehouse,  Clark  v.  Roberts,  25  Hun.  26. 

16  Fed.  Rep.  324 ;  People  v.  Johnson,  •  Isett  v.  Lucas,  supra. 
100  111.  537  ;  Davis  v.  Beckstein,  69 


570  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 

against  a  bona  fide  pledgee  for  value,  without  notice,  is 
fraud  touching  the  execution,  such  as  misreading,  the  sur- 
reptitious substitution  of  one  paper  for  another,  or  the 
obtaining  by  some  other  trick  or  device  of  an  instrument 
different  from  that  intended  by  the  party  executing  the 
same ; '  and  an  equitable  defense,  founded  upon  the  original 
transaction,  may  be  defeated  as  against  an  innocent  pledgee 
for  value,  by  negligence  even  less  than  gross,  if  it  be  the 
cause  of  his  advance.1 

§  423.  EQUITABLE  ASSIGNMENTS  OF  FUNDS  AS  COLLAT- 
ERAL.— Equitable  assignments  of  funds  or  choses  in  action 
are  supported.  Where  certain  property  was  pledged  to  secure 
the  holders  of  bills  of  exchange,  and  upon  sale  tojbe  applied 
in  their  payment,  the  letters  which  passed  between  the 
parties,  without  a  formal  contract,  being  sufficient  as  an 
appropriation  to  entitle  the  holders  of  the  bills  of  exchange 
to  maintain  an  action  for  the  proceeds.8  The  like  rule  was 
applied  where  an  equitable  assignment  of  debts  due  by  third 
persons  to  the  acceptor  was  made  to  secure  the  holders  of 
bills  of  exchange.  Notice  was  given  of  the  assignment,  and 
the  bills  were  discounted,  the  acceptor  subsequently  becom- 
ing insolvent.  The  proceeds  of  the  debts  thus  equitably 
assigned  were  paid  to  the  holders  of  the  bills  of  exchange/ 
A  voluntary  equitable  assignment  ot  a  chose  in  action, 
with  delivery,  when  made  in  good  faith,  and  creditors  are 
unaffected,  cannot  be  defeated  by  a  subsequent  assignee, 
although  paying  value.6  Insurance  policies  having  been 
deposited  as  collateral  security,  and  a  sub-pledge  made  of 
the  policies  and  other  securities  upon  a  bona  fide  advance, 
an  equitable  assignment  by  the  pledgee  of  any  balance  of 
the  proceeds  of  such  policies  and  securities  for  the  benefit 

•George  v.  Tait,  108  U.  S.  564  ;  * Feltz  v.  Walker,  49  Conn,  93. 

Hartshorn  «.  Day,    19  How.  211  ;  «Rankin  v.  Alford,  L.  R.  5  Ch.  D. 

Osterhout  v.  Shoemaker,  3  Hill,  513;  786. 

Belden  v.  Davis,  2  Hall,  433;  Fran-  «  In  re  Mann,  L.  R.  5  Ch.  D.  367. 

chot  c.  Leach,  5  Cow.  506.  •  Beal  c.  Warren,  2  Gray,  447. 


CHOSES  IN  ACTION   AS   COLLATERAL.  571 

of  a  bank  making  advances  thereon,  with  notice  to  the  sub- 
pledgee,  created  a  valid  lien  in  favor  of  the  bank  upon  the 
surplus  of  the  proceeds  from  the  insurance  policies  and 
other  collaterals.1 

A  letter  to  the  effect  that  "  I  hereby  undertake  that  I 
will,  when  and  as  received,  pay  over  to  you  all  dividends 
coming  to  me  in  respect  of  my  proof  upon  the  estate  of  X," 
when  accepted,  and  consideration  given,  is  a  good  equitable 
assignment  of  the  entire  dividends.  The  assignor  himself 
became  bankrupt,  and  the  assignee  then  gave  notice  of  his 
claim  to  the  trustees  in  the  bankruptcy  in  which  the  divi- 
dends were  to  be  declared.  His  claims  were  preferred  to 
the  trustees  in  bankruptcy  of  the  assignor.2  But  a  bank- 
rupt while  undischarged,  having  no  interest  in  the  surplus 
beyond  a  mere  hope  or  expectancy,  cannot  give  an  assignee 
of  such  surplus  any  right  to  interfere  in  the  administration 
of  the  estate.8  A  mere  promise  in  writing,  or  parol,  to  pay 
a  debt  out  of  a  distinctive  fund,  although  it  be  of  the  clear- 
est and  most  solemn  kind,  will  not  give  the  promisee  an 
equitable  lien  on  the  fund  nor  be  sufficient  to  operate  as  an 
equitable  assignment.  Where  the  holder  retains  control  so 
that  he  may  collect  the  fund  or  recall  his  promise,  the  right 
to  a  present  and  complete  control  does  not  exist  on  the  part 
of  the  assignee,  and  no  benefit  can  accrue  to  him.4 

§  424.  ASSIGNMENTS  IN  PART  OP  SUCH  COLLATERALS. — 
The  claims  of  a  pledgee  of  non-negotiable  choses  in  action  or 
of  equitable  assignments  of  funds,  where  but  a  part  or  por- 
tion is  assigned,  is  supported  in  equity.  All  persons  inter- 
ested in  such  choses  in  action  or  funds  should  be  made  parties 

1  Meyers  v.  United  Guaranty  Co.  7  Jackson,   20  Pick.   197  ;  Rogers  v. 

DeG.  M.  &  G.  112.  Hosack,  18  Wend.  319;  Williams  v. 

*  In  re  Irving,  L.  R.  7  Ch.  D.  419.  Ingersoll,  89  N.  Y.  518  ;  Christmas 
8  Ex  parte  Sheffield,  L.  R.  10  Ch.  v.  Griswold,  8  Ohio  St.  558  ;  Hop- 

D.  434.  kins  v.  Beebe,  26  Pa.  St.  85;  Malcolm 

*  Christmas  v.  Russell,  14  Wall.  69;      v.  Scott,  3  Hare,  46;  Field  v.  Megaw, 
Trist   v.  Child,  21  Ib.  441  ;  Hull  v.      L.  R.  4  C.  P.  660. 


572  NON-NEGOTIABLE  COLLATERAL  SECURITIES. 

thus  avoiding  a  multiplicity  of  suits  by  different  claimants 
and  enabling  the  debtor  to  obtain  a  judicial  distribution  of  the 
securities  and  funds  in  his  possession.  The  equity  of  the 
assignee  of  part  only  of  an  equitable  fund  or  chose  in  action 
is  as  deserving  of  protection  in  a  court  of  chancery  as  where 
an  absolute  assignment  of  the  whole  has  been  made,  subject 
to  the  equitable  rule  that  such  part  claim  can  be  separately 
protected  and  enforced  without  injury  or  loss  to  the  debtor.1 
An  order  given  granting  a  part  assignment  of  a  fund  to  be 
settled  by  arbitration  and  pledged  as  collateral  security,  al- 
though the  amount  of  the  fund  had  not  then  become  defin- 
itely settled,  operated  as  an  equitable  transfer,  although 
the  fund  had  a  potential  existence  only  at  the  time  of 
the  assignment.'  Such  part  assignment  should  be  drawn 
against  a  particular  fund,  and  not  against  a  debtor  in  general 
terms.*  But  for  special  reasons,  the  rule  is  not  semble  applied 
to  part  assignments  of  non-negotiable  choses  in  action  issued 
by  municipalities.4 

In  courts  of  law,  no  recovery  can  be  had  upon  part  assign- 
ments of  non-negotiable  choses  in  action  or  equitable  funds. 
The  creditor  if  he  were  allowed  to  split  up  his  cause  of  ac- 
tion into  parts,  or  as  might  be  the  case,  sub-divide  it  in- 


1  Christmas  v.  Russell,  14  Wall.  69;  parte  South,  8  Swanst.  392 ;  Thomp- 
Triflt  v.  Child,  21  Ib.  441  ;  Dowell  son  v.  Simpson,  L.  R.  5  Ch.  659;  Ad- 
t>.  Cardwell,  4  Sawyer,  217  ;  Daniels  dison  v.  Cox,  8  Ib.  76  ;  Ranken  v. 
v.  Menihard,  53  Ga.  359;  Lapping  v.  Alfaro,  L.  R.  5  Ch.  D.  786;  Ex  partc 
Duffy,  47  Ind.  51 ;  Wood  v.  Wallace,  Hall,  10  Ib.  615  ;  and  at  law,  Brown 
24  Ib.  226;  Etheridge  v.  Vernoy,  74  *.  Bateman,  L.  R.  2  C.  P.  272;  Field 
N.  C.  809  ;  Exchange  Bank  v.  Me-  t.  Megaw,  4  Ib.  660  ;  Price  v.  Ban- 
Loon,  73  Me.  498;  Whitney  v.  Cow-  nister,  L.  R.  3  Q.  B.  D.  569;  Tibbetts 
an,  55  Miss.  626;  Christie  v.  Sawyer,  v.  George,  5  A.  &  E.  107. 
44  N.  H.  298  ;  Public  Schools  ».  «  Wellsburg  Bank  v.  Kimberlands, 
Heath,  15  N.  J.  Eq.  22  ;  Morton  v.  16  W.  Va.  555. 
Naylor,  1  Hill,  583  ;  Bradley  v.  Root,  *  Exchange  Bank  v.  McLoon,  73 
5  Paige,  632 ;  Risley  c.  Phoenix  Bank,  Me.  498. 

88  N.  Y.  318;  City  of  Philadelphia's  *  City  of  Philadelphia's  App.,  86 

App.  86  Pa.  St.  79  ;  Claflin  v.  Kim-  Pa.  St.  179;  Jermyn  v.  Mofflt,  75  Pa. 

ball,  52  Vt.  6  ;  Wellsburg  Bank  v.  St.   899  ;    Mandeville   «.   Welch.   5 

Kimberlanda,  16  W.  Va.  555  ;   Ex  Wheat.  277. 


CHOSES  IN  ACTION  AS  COLLATERAL.  573 

definitely,  might  subject  his  debtor  to  embarassments  and 
responsibilities  not  contemplated  by  the  original  contract. 
Nor  will  the  debtor  be  required  to  ascertain  and  decide  at 
his  peril  as  to  the  relative  title  and  rights  of  part  assignees 
of  any  equitable  fund,  or  of  any  cliiim  arising  out  of  or  to  a 
chose  in  action.  The  assignee  of  a  non-negotiable  chose  in 
action  is  at  the  common  law,  and  still  is,  in  law  courts,  unless 
the  rule  has  been  changed  by  statutory  or  code  enactments, 
required  to  sue  in  the  name  of  his  assignor.1 

§  425.  THE  PLEDGE  OF  NON-NEGOTIABLE  COLLATERALS, 
WITH  OR  WITHOUT  INDORSEMENT. — The  transfer  of  non-ne- 
gotiable choses  in  action  as  collateral  security  for  a  loan  or 
discount  is  valid,  whether  with  or  without  indorsement.  In- 
dorsement is  not  generally  required  in  order  to  vest  in  the 
pledgee  for  value  all  the  title  that  he  can  acquire  in  such 
choses  in  action.  Except  where  required  by  the  terms  of 
the  instrument,  indorsement  is  not  usually  necessary.  The 
intention  of  the  parties  to  pass  the  title  to  choses  in  action 
will  control,  although  no  indorsement  has  been  made.  An 
equitable  lien  may  be  created  by  parol.*  The  delivery  of  a 
savings  bank  without  indorsement  or  assignment,  as  collat- 
eral security,  conveys  an  equitable  title  to  the  deposits, 
which  is  preferred  as  against  legal  process  subsequently  is- 
sued by  a  creditor.8  A  delivery  of  a  certificate  of  deposit 
issued  by  a  bank  and  made  payable  to  a  certain  named  per- 
son, "or  his  order,  upon  the  return  of  this  certificate  prop- 
erly indorsed,"  is  sufficient,  under  provisions  of  statutes 

1  Mandeville  v.  Welch,  1  Wheat.  »  Thayerc.  Daniels,  113  Mass.  129; 

233;  s.  c.  5  Wheat.  277;  Tierman  v.  Kingman v. Perkins,  105 Ib. Ill;  Dix 

Jackson,  5  Vt.  580  ;    Creighton  v.  v.  Cobb.  4  Ib.  508,  512 ;  Williams  v. 

Hyde  Park,  6  Bradw.  273  ;  Bobbins  Ingersoll,  89  N.  Y.  518 ;  Stout  ®.  Yae- 

D.  Bacon,  3  Greenl.  346  ;  Stanberry  ger  Co.,  13  Fed.  Rep.  832. 

v.  Smythe,  13  Ohio  St.  495  ;  Gibson  8  Taft  v.  Bowker,  132  Mass.  277  ; 

0.  Cooke,  20  Pick.  15  ;    Palmer  v.  Pierce  v.  Boston  Savings  Bank,  129 

Merrill,  6  Cush.  282 ;  Tnpp  v.  Brown-  Ib.  425;  Kingman  v.  Perkins,  105  Ib. 

ell,  15  Ib.  376;  Bullard  t>.  Randall,  1  111. 
Gray,  605. 


574  NON-NEGOTIABLE  COLLATERAL   SECURITIES. 

relating  to  suits  being  brought  by  the  real  parties  in  interest, 
to  entitle  the  person  advancing  money  upon  such  securities 
to  bring  an  action  in  his  own  name.1  Such  certificates  of 
deposit  issued  by  banks  assimilate  to  negotiable  paper,  the 
legal  title  only  passing  upon  indorsement  and  delivery ;  and 
in  the  absence  of  statutory  enactment,  the  security  is  made 
more  effective  by  indorsement  than  by  delivery  merely.9 
A  written  assignment  and  delivery  of  profits  of  a  con- 
tract for  building  a  public  road  was  required  for  the  same 
reason,  the  rendering  of  the  security  the  more  available  to 
satisfy  the  debt  upon  default.8  And  a  legal  title  was  ac- 
quired to  deposits  in  a  savings  bank  by  an  indorsement  on 
the  book,  as  against  an  equitable  title  obtained  by  delivery 
without  indorsement.4  A  pledgee  advancing  money  upon 
the  credit  of  the  apparent  ownership  of  a  person  holding 
scrip  certificates  for  money  indorsed  in  blank,  without  notice 
of  equities,  obtains  a  good  title  against  the  owner.8  The 
delivery  of  choses  in  action  is  an  essential  condition  of  a 
pledge  thereof.6 

§  426.  THE  ASSIGNMENT  IN  PLEDGE  OF  INSURANCE  POL- 
ICIES.— Indorsement  as  well  as  delivery  is  required  of  insur- 
ance policies,  either  fire  or  life,  where  payable  to  a  certain 
named  person  "  or  assigns,"  in  order  to  render  them 
effectual  as  collateral  security  for  an  advance.1  Where  a  de- 
posit had  been  made  of  an  insurance  policy  as  collateral  se- 
curity for  a  loan,  upon  an  agreement  to  make  a  formal 
indorsement,  but  the  pledger  died  before  its  execution, 

1  Cassidy  v.  First  Nat.  Bank,  30  4  Cornbes  v.  Chandler,  33  Ohio  St. 

Minn.  86;  Pease  v.  Rush,  2  Ib.  107;  178;  "Weirick  ».  Bank,  16  Ib.  296. 

Beal  v.  Warren,  2  Gray,  447.  6  Baldwin  <o.  Ely,  9  How.  580. 

8  International    Bank  v.  German  •Wliipple  v.  Whipple,  109  111.  418; 

Bank,  71  Mo.  883;  Cassidy  v.  First  Hart  v.  Forbes,  60  Miss.  746. 

Nat.  Bank,  supra;   Klauber  v.  Big-  7  Shearman  ».  Niagara  Fire  Ins. 

gerstaff,  47  Wis.  551 ;  Pardee  v.  Fish,  Co.  46  N.  Y.    526;     Merrifield    v. 

60  N.  Y.  265.  Baker,  11  Allen,  43;  City  Bank  ». 

•Gay  v.  Moss,  86  Cal.  125;  Dewey  Ass.  Co.  32  W.  R.  658. 
v.  Bowman,  8  Ib.  151. 


CHOSES  IN  ACTION  AS   COLLATEKAL.  575 

equity  relieved  the  pledgee  by  a  decree  for  the  payment  by 
the  company  to  him  of  the  amount  due  with  interest,  with- 
out a  formal  assignment.1  An  equitable  title  is  acquired  to 
policies  of  insurance  pledged  as  collateral  security  by 
delivery  merely,  such  being  the  mutual  intention  of  the 
parties  :2  and  an  equitable  pledge  of  a  surplus  arising  from 
a  policy  is  sustained,  upon  notice  to  the  pledgee.8  The  use 
as  collateral  security  of  insurance  policies,  upon  bona  fide 
loans,  vests  in  the  pledgee  the  legal  title,  as  upon  an  abso- 
lute assignment.  Receiving  such  title,  he  may  enforce  the 
security  to  its  full  amount,  holding  any  surplus  after  pay- 
ment of  his  advances,  premiums  and  assessments  paid,  for 
the  pledgor  or  persons  equitably  entitled  thereto.4  But  no 
enforcement  is  allowed  the  pledgee,  although  advancing 
value,  upon  assignments  of  policies  obtained  merely  for 
speculative  purposes,  such  policies  being  illegal  and  void.6 
A  clause  in  a  policy  prohibiting  assignments  without  the 
consent  of  the  insurance  company  does  not  apply  to  a 
pledge.6  A  creditor,  who  had  been  promised  an  insurance 
policy  as  collateral  security  for  an  advance,  and  by  negli- 
gence failed  to  obtain  it  before  the  pledger's  death,  was 
not  allowed  to  claim  privilege  under  the  Louisiana  code.7 
A  prior  pledgee,  with  possession,  is  preferred  in  equity.8 

'Crossley  v.  Ins.  Co.  4  Ch.  D.  421;  Ins.  Co.  v.  Coffee,  61  Tex.  287;  Ins. 

Webster  v.  Ins.  Co.  15  Ib.  169.  Co.  «.  Garland,  108  111.  220 ;  Olmsted 

8Soule  v.  Bank,  45    Barb.    Ill;  v.  Keyes,  85  N.  Y.  593;   Gilbert  v. 

West  v.  Ins.  Co.  31  Ark.  476;  Bruce  Moose,  13  W.  N.  C.  439;  Fairchild 

v.  Gardner,  L.  K.  5  Ch.32;  Edwards  ».  Life  Assn.  51  Vt.  625;  Gilman  v. 

v.  Martin,  L.  R.  1  Eq.  121 ;  Latham  Curtis,  64  Cal.  (16  C.  L.  N.  217). 
D.  Bank,  17  Ib.  205;  Stout  v.  Yaeger         6Rombach  v.  Ins.  Co.  35  La.  Ann. 

Co.  13  Fed.  R.  802;    Chapman  v.  233;  Stokell  v.  Kimball,  59N.H.  13; 

Mcllrath.  77  Mo.  39;  Hart «.  Forbes,  Stevens  v.  Warren,  101  Mass.  251; 

60  Miss.  29;  Williams'  App.  15  W.  Johnson  v.  Van  Epps,  14  Bradw. 

N.  C.  89.  201 ;  Warnock  v.  Davis,  supra. 

8 Myers  ®.  Guarantee  etc.  Co.  7  «Ellis  v.  Kreutzinger,  27  Mo.  311; 

DeG.  M.  &  G.  112;    City  Bank  «.  Spare  «.  Ins.  Co.  17  F.  R.  568;  Pow- 

Ass.  Co.  supra;  Diflenbach  v.  Vo-  ers  v.  Ins.  Co.  136  Mass.  108. 
geler,  61  Md.  370.  7  Succ.  D'Meza,  26  La.  Ann.  35. 

4  Warnock  v.  Davis,  104  U.  S.  775 ;          8  Spence?-  v.  Clarke  L.  R.  9  Ch.  D. 

O'Mara  v.  Nugent,  37  N.  J.  Eq.  324;  137;  Diffenbach  v.  Vogeler,  supra. 


576         NON-NEGOTIABLE  COLLATERAL  SECURITIES. 

§  427.  THE  PLEDGEE'S  LIEN,  UPON  PAYMENT  OF  PRE- 
MIUMS.— A  lien  enforcible  in  equity  may  be  created  upon 
the  moneys  secured  by  an  insurance  policy  by  payment  of 
premiums,  where  they  are  paid  under  a  contract  with  the 
beneficial  owner.  The  sureties  of  a  mortgagor  who  has  con- 
tracted with  a  mortgagee  to  pay  the  premiums  on  an  insur- 
ance policy  as  a  collateral  security,  who  have  paid  such 
premiums  upon  default  of  their  principal,  are  given  a  lien 
upon  the  moneys  realized  from  the  insurance  policy  held  as 
security.1  Such  lien  upon  insurance  policies  as  collateral, 
may  also  be  acquired  by  trustees  who  have  advanced  money 
for  the  preservation  of  the  trust  property,  and  by  other 
persons  who  have  loaned  funds  bona  fide,  upon  request  of 
trustees,  for  the  like  purpose.*  The  claim  of  persons  ad- 
vancing money  to  pay  premiums  on  insurance  policies  at 
the  request  of  trustees,  is  not  defeated  by  reason  of  the  fact 
that  the  trustees  who  obtained  the  loan  might  possibly  have 
taken  some  other  course  to  obtain  a  fund  for  the  preserva- 
tion of  the  trust  property.8  Payments  of  premiums  upon 
insurance  policies  made  by  a  stranger,  or  by  an  owner  in 
part  of  such  policies,  are  not  sufficient  to  create  a  lien  upon 
the  insurance  moneys,  unless  the  owner  stands  by  during  such 
payments,  and  allows  the  same  to  be  expended  in  preserving 
his  property.4  An  owner  of  insurance  policies,  as  a  part  of  a 
transaction  voidable  for  fraud,  assigned  the  same  as  collateral 
security  for  moneys  advanced,  covenanting  to  pay  the  premi- 
ums to  keep  them  alive.  The  pledgee  paid  some  of  the  premi- 
ums after  the  assignment.  The  pledgor  instituted  a  suit  to 
set  aside  the  transaction  as  being  voidable  by  reason  of  fraud, 
but  was  only  given  relief  as  to  the  premiums  paid,  as  by  the 


'In  re  Leslie,  L.  R.  23  Ch.  D.  552;  4  Norris  v.  Caledonian  Ins.  Co. 

Warnock  v.  Davis,  104  U.  S  775;  L.  R.  8  Eq.  127;  In  re  Leslie,  Les- 

Scobey  ®.  Waters,  10  Lea,  551-  Har-  lie  v.  French,  L.  R.  23  Ch.  D.  552, 

ley  v.  Heist,  86  Ind.  196.  565 ;  Burridge  t>.  Row,  1  Y.  &  C. 

'Clack  v.  Holland,  19  Beav.  262;  Ch.  183;  Clack  «.  Holland,  19  Bcav. 

Todd  V.  Moorhouse,  L.  R.  19  Eq.  69.  262;  Pinkett  v.  Wright,  2  Hare,  120; 

»Todd  t.  Moorhouse,  supra.  12  Cl.  &  F.  764. 


CHOSES   IN   ACTION   AS   COLLATERAL.  577 

assignment  as  security  the  pledgee  had  become  a  part  owner 
the  policies,  and  had  no  lien  for  such  payments.  The  title 
of  the  pledgee,  however,  was  fully  protected  to  the  amount 
of  the  moneys  actually  advanced,  the  assignment  of  the 
policies  being  a  valid  security  to  that  extent.1  An  insurance 
policy  on  the  life  of  a  third  person  was  assigned  by  the 
equitable  owner  as  collateral  security  for  the  payment  of 
certain  legacies,  the  pledger  covenanting  to  pay  the  premi- 
ums. After  his  decease,  his  executor  continued  the  pay- 
ments. The  payments  of  premiums  being  by  a  part  owner 
and  his  representative,  created  no  lien  on  the  insurance 
policies,  as  against  the  legatees.1 

§  428.  PLEDGE  OF  NON  -  NEGOTIABLE  COLLATERALS, 
WITHOUT  NOTICE  TO  DEBTOR. — A  pledgee  for  value,  with- 
out notice,  of  non-negotiable  collaterals,  which  are  in  the 
form  of  documents  or  indicia  of  title,  receiving  the  same 
indorsed,  where  required,  or  by  delivery,  is  protected  as 
against  creditors  of  the  debtor,  or  subsequent  assignees  of 
the  same  security,  although  he  has  given  no  notice  of  the 
assignment  to  the  person  who  is  liable.8  Under  this  rule, 
supporting  the  equitable  title  of  an  assignee  of  a  non-nego- 
tiable chose  in  action,  receiving  the  documents  of  title,  as 
against  later  pretended  assignments  of  the  same  collateral 
security,  it  is  immaterial  that  the  second  assignee  acquired 
his  interest  under  such  pledge  in  good  faith  and  for  value.4 
Creditors  of  the  debtor  are  subject  to  the  rights  acquired 
under  such  pledge,  although  no  notice  be  given  to  the 
debtor,  and  the  assignment  of  the  chose  in  action  is  by 

1  Pennell  v.  Millar,  23  Beav.  172.  Martin  v.  Potter,  11  Gray,  37;  King- 

*  In  re  Leslie,  L.  R.  23  Ch.  D.  552.  man    v.    Perkins,    105    Mass.    Ill; 

«Muir  t>.   Schenk,    3    Hill,    228;  Tkayer   «.    Daniels,    113    Ib.    129; 

Greenstock  v.  Rosenback,  61  N.  Y.  United  States  v.  Vauglian,  3  Binn. 

583;  Freund  v.  Importer's  Bank,  76  394;  Stevens  v.  Stevens,  1  AshmeaJ, 

Ib.  352;   Williams  ®.  Ingersoll,  89  190. 

Ib.  518;  Dix  v.  Cobb,  4  Mass.  508,  4  Muir  v.  Schenck,  3  Hill,  228. 

512;  Richards  v.  Smith,  9  Gray,  315; 
87 


578  NON-NEGOTIABLE  COLLATERAL  SECURITIES. 

delivery  merely.1  Notice  to  an  insurance  company  of  the 
assignment  of  a  policy,  where  the  pledgee  never  received 
possession  of  the  document  of  title,  is  of  no  avail  as  against 
a  second  pledgee,  advancing  money  upon  an  indorsement 
and  delivery  of  the  policy,  in  good  faith  and  without  notice 
of  the  previous  pledge.9  The  early  rule  in  England,  under 
which,  as  between  bona  fide  assignees  of  the  same  non-nego- 
tiable chose  in  action,  the  one  giving  notice  to  the  debtor 
was  preferred,  although  becoming  a  holder  for  value  with- 
out notice  subsequently,8  has  been  overruled.  The  equita- 
ble claim  of  the  bona  fide  assignee,  for  value,  having  prior- 
ity in  point  of  time,  although  he  has  given  no  notice  to  the 
debtor,  is  preferred.4  A  minor's  interest  under  a  will  is 
assignable,  and  although  unrecorded,  and  without  notice  to 
the  person  holding  the  fund,  the  rights  of  a  bona  fide  assignee 
advancing  value  are  preferred  as  against  the  claims  of  a 
subsequent  assignee,  who  had  both  recorded  his  assignment 
and  given  notice  to  the  trustee.8 

§  429. — PRIORITY  OF  ASSIGNEES  OP  FUNDS,  UPON  GIV- 
ING NOTICE. — Upon  an  equitable  assignment  of  an  interest 
in  funds  in  the  hands  of  debtors,  or  third  parties,  or'trustees, 
or  only  potentially  existent,  the  assignments  being  made  by 
independent  instruments,  notice  should  be  given  by  assignees 
to  such  debtors,  or  trustees,  or  third  persons,  within  a  reason- 
able time.  As  between  the  immediate  parties  to  an  assign- 
ment, no  notice  to  the  debtor  or  trustee  is  required;  but 

1  Taft  v.  Bowker,  132  MQSS.  297;  v.  Cooper,  Ib.  60;  Mangles  P.  Dixon, 

Norton  «.  Piscataqua  Ins.  Co.   Ill  McN.  &  G.  437:  Fosters.  Blackstone, 

Ib.  532;  Thnycr  v.  Daniels,  113  Ib.  1  M.  &  K.  297;  Meux  v.  Bell,  1  Hare, 

129;   Kingman  ».  Perkins,   105  Ib.  73. 

Ill;  Martin  v.  Potter,  11  Gray,  56;  4  Pickering  v.  Ilfracombe  Ry.  Co. 

Lewis  v.  Trailer's  Bank,*30  Minn.  L.  R.  3  0.  P.  235;  Robinson  v.  Nes- 

134.  bitt,  L.  R  8  0.  P.  264 ;  Beavan  t?. 

•  Spencer  v.  Clarke,  L.  R,  9  Ch.  Oxford,  6  DeG.  M.  &  G.  492;   Kin- 
D.  137.  derley  v.  Jervis,  23  Beav.  1. 

•  Watts  V.  Porter,  3  E.  &  B.  743;  »  Putnam  ».  Story,  132  Mass.  205; 
Dearie  v.  Hall,  3  Russ.  1 ;  Lovcridge  Thaycr  v.  Daniels,  105  Ib.  139. 


CHOSES  IN  ACTION  AS  COLLATERAL.  579 

the  assignee,  in  order  to  protect  his  title  against  subse4uent 
assignees  of  the  same  equitable  interest  in  such  funds,  for 
value,  without  notice,  and  who  have  honestly  made  inqui- 
ries as  to  the  title,  should  give  reasonable  notice  of  his 
claims  to  the  debtor  or  trustee.  A  failure  to  give  such 
notice,  by  reason  of  which  an  innocent  assignee  has  been 
deceived  into  advancing  value  for  a  second  assignment  of 
the  same  interest  from  the  assignor,  will  defeat  the  claim  of 
the  prior  assignee,  although  he  has  advanced  value,  where 
notice  to  the  debtor  or  trustee  of  his  assignment  has  been 
given  by  the  second  assignee.  The  latter  stands  in  a  better 
position  than  the  first  assignee,  having  acquired  by  notice 
the  legal  as  well  as  the  equitable  title  to  the  fund  assigned.1 
An  assignee  for  value  of  a  legal  title  from  a  real  owner, 
with  a  valid  title  of  record,  is  not  chargeable  with  notice  by 
the  registry  of  an  equitable  title,  although  a  subsequent 
assignee  of  such  equitable  interest  from  the  same  grantor  is.* 

§  430. — THE  DEBTOR'S  LIABILITY,  WITH  NOTICE  OP  AS- 
SIGNMENT.— Debtors  bound  upon  non-negotiable  choses  in 
action,  or  trustees  holding  equitable  funds,  who  are  charge- 
able with  notice  of  the  transfer  to  the  assignee,  are  equitably 
required  to  abstain  from  doing  or  omitting  any  act  which 
may  result  to  the  prejudice,  loss  or  damage  of  the  rights  and 
interests  of  such  assignee  for  value,  in  good  faith.  Any 
payments,  or  compromises,  or  settlements  made  by  a  debtor 
with  the  assignor  or  other  parties,  after  notice  of  such  as- 
signment, and  without  consent  of  the  assignee,  are  fraudu- 
lent and  void,  and  afford  no  defense  to  an  action  by  the 
assignee.8  The  assignee  for  value,  without  notice,  of  a  non- 
negotiable  document  of  title,  is  protected  as  against  credi- 

'Judson  •».  Corcoran,  17  How.  *  Creightonfl.  Hyde  Park,  6  Brad w. 
280;  Murray  v.  Lylburn,  2  Johns.  274;  Carr  v.  Waugh,  28  111.  418; 
Ch.  442 ;  Moore  <o.  Holcombe,  3  Morris  v.  Cheney,  51  Ib.  451 ;  Little- 
Leigh,  597.  field  v.  Story,  3  Johns.  426;  Field  v. 

*  Tarbell  «.  West,  86  N.  T.  280 ;  Mayor,  7  N.  T.  179. 
Bentley  «.  Bates,  4  T.  &  C.  190. 


580  NON-NEGOTIABLE  COLLATERAL  SECUKITIES. 

tors  of  the  debtor  and  subsequent  assignees  of  the  same 
chose  in  action,  although  no  notice  has  been  given  of  such 
assignment.  Notice,  however,  should  be  given  to  the  debtor 
to  defeat  a  subsequent  bona  fide  payment  made  by  him  to 
the  creditor.1  Fraudulent  releases  of  choses  in  actions  or 
equitable  funds  by  the  creditor  after  assignment  and 
notice  to  the  debtor  or  trustees,  are  of  no  effect  as  against 
a  bona  fide  assignee  for  value  advanced.* 

§  431. — NO  TITLE  ACQUIRED  BY  PLEDGEES,  WITH  NOTICE 

OF  FRAUD. — A  pledgee  of  a  non-negotiable  security,  charge- 
able with  notice,  express  or  implied,  that  such  use  is  an  act 
of  fraud  or  misappropriation,  can  acquire  no  right  to  be  pro- 
tected in  equity,  nor  any  better  title  to  such  collateral  than 
the  pledger.  A  trust  company  issued  a  non-negotiable  re- 
ceipt for  certain  bonds,  the  receipt  being  in  the  name  of  a 
third  person  as  "  trustee."  Authority  was  given  to  use  the 
receipt  as  collateral  security  for  a  certain  sum,  but  it  was 
fraudulently  pledged  to  secure  more  than  twice  the  amount. 
Learning  of  the  misappropriation,  a  tender  was  made  of  the 
amount  authorized,  and  demand  for  the  receipt.  Charge- 
able with  notice  by  the  terms  of  the  receipt,  the  pledgee 
was  bound  to  inquire  of  the  cestui  que  trust  whether  the 
transaction  was  authorized  ;  failing  to  do  so,  he  must  bear 
the  loss  resulting  from  his  negligence.*  Notice  of  the  re- 
stricted rights  of  a  pledgee,  holding  a  lease  as  security  for 
the  payment  of  a  negotiable  note,  is  sufficient  to  defeat  an 
assignee  of  the  interest  of  the  pledgee  when  attempting  to 
claim  greater  rights  than  those  of  his  assignor.4  A  pledgee 
can  acquire  no  interest  under  an  assignment  of  a  judgment, 
taken  against  a  putative  father  in  a  bastardy  case  to  provide 
for  the  maintenance  of  the  child,  in  custody  of  a  guardian, 
made  by  the  mother  as  collateral  security  for  her  individual 

1  Williams  t>.  Ingersoll,  89  N.  Y.  »  Swan  v.  Produce  Bank,  24  Hun. 

518.  277. 

*  Andrews  c.  Becker,  1  Johns.  Cas.  4  Dewey  v.  Bowman,  8  Cal.  145. 
411. 


CHOSES   IN  ACTION  AS  COLLATERAL.  581 

debt,  when  chargeable  with  notice  of  the  misappropriation.1 
Nor  can  a  pledgee  acquire  any  title  as  against  the  real  owner 
in  a  case  where  a  truscee  borrows  money  for  his  own  use, 
assigning  an  order  or  decree  in  favor  of  the  trust  estate  as  col- 
lateral security  for  its  repayment,  the  pledgee  being  charge- 
able with  knowledge  of  the  misappropriation.*  Upon  a 
wrongful  pledge  by  an  agent,  however  general  his  powers, 
of  a  judgment  owned  by  his  principal,  as  collateral  security 
for  a  loan  by  a  bank  to  himself,  the  principal  note  being 
signed  as  "  agent  and  attorney,"  the  pledgee,  being  charge- 
able with  the  duty  of  inquiring  as  to  the  extent  of  the  au- 
thority given,  upon  failure  so  to  do,  can  acquire  no  valid 
claim  against  the  real  owner  of  the  judgment.8  Notice  is 
not  presumed  as  against  a  bona  fide  pledgee  for  value, 
where  land  certificates,  and  transfers  indorsed  in  blank, 
properly  acknowledged,  having  been  deposited  with  an 
agent  for  safe  keeping  and  for  sale,  were  fraudulently 
pledged  by  him  as  collateral  security  for  an  advance  made 
without  notice  of  equities.  There  is  nothing  in  the  fact  of 
a  pledge  of  certificates,  indorsed  in  blank,  to  put  a  bona  fide 
pledgee  upon  inquiry  as  to  who  is  the  real  owner.  The 
presumption  is,  that  the  holder  is  the  owner,  and  has  given 
value  for  the  same.4  And  the  pledgee,  receiving  such 
choses  in  action  so  as  to  be  vested  with  the  legal  title  and 
ownership,  also  enjoys  the  benefit  of  the  presumption  that 
the  assignment  was  executed  to  him  upon  a  sufficient  and 
valuable  consideration,  and  that  he  is  a  holder  for  value, 
with  a  good  title.6 

1  Heritage  v.  Hedges,  72  Ind.  247.  *  Stone  t>.  Brown,  54  Tex.  330. 

8  Brewster  D.  Galloway,  4  Lea,  558.  6  Tallman  v.  Hoey,  89  N.  T.  537  ; 

8  Wickham  v.  Morehouse,  16  Fed.  Belden  ».  Meeker,  47  Ib.  311. 
Rep.  324. 


582  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 


CHAPTER  XLV. 

ESTOPPEL  IN  PAIS,  IN  FAVOR  OF  PLEDGEES. 


Estoppel  in  pais,  as  applied  to  non-negotiable  collateral. 

433.  Essential  elements  of  estoppel  under  such  collateral. 

434.  Recognized  propositions  of  an  estoppel  iu  pais. 

435.  Estoppel,  by  representations  upon  non-negotiable  securities. 

436.  Estoppel  of  owner,  in  cases  of  tortious  pledge. 

437.  The  innocent  pledgee  for  value  protected  as  against  owner. 

438.  Rights  of  pledgee  under  blank  indorsements. 

439.  Moore  v.  Metropolitan  National  Bank. 

440.  Estoppel  of  corporations  as  against  innocent  pledgees  for  value. 


§  432.  ESTOPPEL  IN  PAIS,  AS  APPLIED  TO  NON-NEGOTIA- 
BLE COLLATERAL. — No  distinction  can  be  drawn  between 
the  equitable  title  of  a  pledgee  for  value  of  a  non-negotia- 
ble chose  in  action,  where  the  rules  of  estoppel  in  pais  are 
invoked,  and  the  legal  title  of  the  pledgee  for  value  holding 
negotiable  collateral  securities,  under  indorsement  and  de- 
livery.1 The  representations  made  in  non-negotiable  choses 
in  action  are  enforced,  under  the  rules  of  equitable  estoppel, 
to  the  same  extent  as  the  like  representations  contained  in 
instruments  negotiable  by  the  commercial  law.  They  are 
subject  to  the  like  qualification,  when  sought  to  be  enforced 
by  a  pledgee  for  value,  that  faith  and  credit  have  been  given 
to  such  collateral  securities  upon  the  belief  that  the  repre- 
sentations made  on  its  face  and  by  indorsement,  are  true.* 
Equities  existing  between  the  original  parties  to  the  contract 

1  Moore  c.  Metropolitan  Nat.  Bank,  Metropolitan  Nat.  Bank,  55  Ib.  41; 

55  N.  Y.  41.  Goodwin  v.  Robarts,  L.  R.  10  Ex.  76, 

»  Armour  «.  Michigan  Central  R.  337;  1  App.  476, 489. 
R.  Co.  65  N.  Y.  Ill,  123  ;  Moore  t>. 


ESTOPPEL,   IN  FAVOR  OF   PLEDGEES.  583 

yield  to  ihe  rules  of  estoppel  in  pais,  in  cases  where  it  ap- 
pears from  the  terms  of  the  collateral  security  or  by  indorse- 
ment that  the  intention  of  the  person  executing  the  same 
must  have  been  that  such  chose  in  action  should  be  assigna- 
ble free  from  and  unaffected  by  all  equities,  defenses,  or 
set-offs  of  such  maker  or  obligor.1  The  equities  and  de- 
fenses to  which  a  non-negotiable  chose  in  action  is  per  se 
subject,  are  not  affected  by  the  application  of  the  rules  of 
estoppel  in  pais  in  favor  of  bona  fide  pledgees  for  value,  and 
receiving  an  assignment,  as  against  the  real  owner.8 

The  rule  that  where  a  person  gives  a  non-negotiable  se- 
curity to  another  for  the  very  purpose  of  raising  money  upon 
it,  he  is  estopped  to  set  up  any  collateral  contract  to  defeat 
the  title  of  an  innocent  person  advancing  money  on  the  faith 
of  the  statements  in  the  bond,  was  approved  by  the  Court 
of  Queen's  Bench,  in  a  case  where  a  secret  agreement  was 
made  by  a  corporation  with  the  person  to  whom  a  bond  was 
issued,  that  he  should  pay  the  same,  and  the  accruing  inter- 
est, and  indemnify  the  corporation.  Such  contract  consti- 
tuted no  defense  as  against  innocent  holders  for  value  as  the 
person  in  possession  of  the  bond  was  able  by  means  of  the 
defendant's  acts,  to  deceive  the  parties  who  advanced  money 
on  the  faith  of  the  statements  contained  in  the  bond.3  And 
where,  upon  an  absolute  failure  of  consideration  by  a  person 
to  whom  a  bond  had  been  issued,  an  application  of  the  rules 
of  equitable  estoppel  in  favor  of  a  holder  for  value,  without 
notice,  was  refused,  the  title  acquired  to  a  mere  chose. in 
action  being  subject  to  all  the  equities  between  the  original 
parties  to  the  contract,  the  court  (Lush,  J.)  said:  "But  if 
the  bond  had  been  given  for  the  purpose  of  raising  money  on 
it,  it  would  have  made  all  the  difference."4 


1  In  re  Agra  v.  Masterman's  Bank,  *  Dickson  v.  Swansea  R.  R.  Co.  L. 

L.  R.  2  Ch.  391,  397.  R.  6  Q.  B.  44. 

3  Trustees  of  Union  College  v.  *  In  re  Natal  Investment  Co.  L. 

Wheeler,  61  N.  Y.  114.  R.  3  Ch.  355. 


584        NON-NEGOT1ABL3  COLLATERAL  SECURITIES. 

§  433.  ESSENTIAL  ELEMENTS  OF  ESTOPPEL,  UNDER  SUCH 
COLLATERAL. — The  essential  elements  of  equitable  estoppel 
are :  a  representation  or  concealment  of  material  facts ;  such 
representation  must  be  made  with  knowledge,  unless  the 
party  making  the  representation  is  bound  to  know  the  facts, 
or  ignorance  is  the  result  of  gross  neglect;  the  party  to 
whom  it  is  made  must  be  ignorant  of  the  truth  of  the  mat- 
ter; it  must  be  made  with  the  intention  that  the  other  shall 
act  upon  it,  and  a  culpable  neglect  on  the  part  of  the  person 
sought  to  be  estopped,  the  effect  of  which  is  to  make  a  fraud 
on  the  party  setting  up  the  estoppel,  will  supply  the  place 
of  intent;  the  other  party  must  have  been  induced  to  act 
upon  the  representations.1  The  rules  of  equitable  estoppel 
are  founded,  to  a  great  extent,  upon  the  existence^  of  fraud 
in  the  transaction,  alike  in  its  purposes  and  in  its  results.9 
To  constitute  an  estoppel,  both  an  opportunity  and  an  appar- 
ent duty  to  speak  must  concur  with  knowledge  that  reliance 
is  being  placed  upon  the  written  representations  of  the  per- 
son sought  to  be  estopped,  and  in  cases  of  loan,  that  the 
lender  of  money  is  acting  or  about  to  act  as  he  would  not  do 
if  the  truth  was  declared.8  And  silence  merely  of  the 
obligor  of  a  non-negotiable  chose  in  action,  during  .the 
course  of  negotiation,  where  the  assignment  is  made  with 
his  consent,  is  sufficient  to  entitle  an  innocent  pledgee  de- 
ceived thereby  to  the  benefit  of  an  application  of  the  rules 
of  equitable  estoppel  as  against  any  attempt  of  the  obligor  to 
set  up  defenses  or  equities  to  defeat  his  title,  or  its  enforce- 
ment.4 But  no  estoppel  arises  where  the  representation  con- 
sists in  an  incorrect  statement  of  law,  nor  upon  false 

'Griffin  ».  Dwiglit,   6  Col.  584;  153;   Odlin  v.  Gove,  41  N.  H.  465; 

Patterson  «.  Hitchcock,  3  Col.  5C6.  Wegh  <o.  Boylan,  85  N.  Y.  394:  Hill 

» Traun  v    Kiefer,   31  Ala.  136  ;  «.  Epley,  31  Pa.  St.  331 ;  Eldred  «. 

Martin  v.  Zellcrbacb,  38  Cal.  318;  Hazlctt,  33  Ib.  307;  White*.  Lang- 

Taylor  v.  Ely,  25  Conn.  250 ;  David-  don,  30  Vt.  599. 

son  v.  Young,  38  111.  146  ;  People  «.  »  Viele  v.  Judson,  83  N.  Y.  33. 

Brown,  67  111.  437;  Powell  v. Rogers,  <  Wegh  v.  Boylan.  85  N.  Y.  394; 

105  Ib.318;  Dixfleld  «.  Newton,  41  Watson  t>.  McLaren,  19  Wend.  563. 
Me.  221 ;  Grimes  v.  Kimball,  8  Allen, 


ESTOPPEL,   IN   FAVOR   OF  PLEDGEES.  685 

statements  made  to  conceal  an  illegal  contract.1  And  the 
document  upon  which  advances  are  made,  must  be  an  indi- 
cia of  title  or  a  symbol  of  property,  by  the  transfer  of  which 
the  legal  title  and  right  to  possession  of  the  property  or 
funds  represented,  may  pass  to  the  lender  of  money.3 

§  434.  RECOGNIZED  PROPOSITIONS  OF  AN  ESTOPPEL  IN 
PAIS. — In  a  case  in  which  it  was  sought  to  estop  a  common 
carrier  from  denying  that  it  was  in  possession  of  certain 
property,  which  it  was,  if  in  possession,  bound  to  deliver,  the 
representations  to  the  person  advancing  money  being  con- 
tained in  non-negotiable  "advice  notes,"  the  Court  of 
Common  Pleas  (Brett,  J.)  announced  certain  recognized 
propositions  of  an  estoppel  in  pais,  within  the  lines  of 
which  it  was  necessary  such  innocent  person  should  bring 
his  claim  :  "If  a  man  by  his  words  or  conduct  wilfully  en- 
deavors to  cause  another  to  believe  in  a  certain  state  of 
things  which  the  first  knows  to  be  false,  and  if  the  second 
believes  in  such  state  of  things,  and  acts  upon  his  belief;  he 
who  knowingly  made  the  false  statement  is  estopped  from 
averring  afterwards  that  such  a  state  of  things  did  not  ex- 
ist."8 Another  recognized  proposition  seems  to  be  that, 
"  If  a  man,  either  in  express  terms  or  by  conduct,  makes  a 
representation  to  another  of  the  existence  of  a  certain  state 
of  facts  which  he  intends  to  be  acted  upon  in  a  certain  way, 
and  it  be  acted  upon  in  that  way,  in  the  belief  of  the  exist- 
ence of  such  a  state  of  facts,  to  the  damage  of  him  who  so 
believes  and  acts,  the  first  is  estopped  from  denying  the  ex- 

1  Rashdall  v.  Ford,  L.  R.  2  Eq.  750.  statement  is  made  for  the  purpose  of 

In  Horton  v.  Westminster  Comm.  7  concealing  an  illegal  contract ;  for 

Ex.  780,  791,  Martin,  B.  says:  "The  persons  cannot  be  allowed  to  escape 

meaning  of  estoppel  is  this — that  the  from    the    law  by  making  a  false 

parties  agree,  for  the  purpose  of  a  statement." 

particular  transaction,  to  state  cer-  *  Imperial  Bank  v.  London  Dock 

tain  facts  as  true,  and  that,  so  far  as  Co.  L.  R.  5  Ch.  D.  195;  Guun  v.  Bol- 

regards  that  transaction,  there  shall  ckow,  L.  R.  10  Ch.  499. 

be  no  question  about  them.     But  the  *  Carr  v.  London  Ry.  Co.  L.  R.  10 

whole  matter  is  opened  where  the  C.  P.  307,  316. 


586  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 

istence  of  such  a  state  of  facts.1  And  "if  a  man,  whatever 
his  real  meaning  may  be,  so  conducts  himself  that  a  reason- 
able man  would  take  his  conduct  to  mean  a  certain  repre- 
sentation of  facts,  and  that  it  was  a  true  representation,  and 
that  the  latter  was  intended  to  act  upon  it  in  a  particular 
way,  and  he  with  such  belief  does  act  in  that  way  to  his 
damage,  the  first  is  estopped  from  denying  that  the  facts 
were  as  represented." 

Another  rule  of  estoppel  is,  that  "  If  in  the  transac- 
tion itself  which  is  in  dispute,  one  has  led  another  into  the 
belief  of  a  certain  state  of  facts  by  conduct  of  culpable  neg- 
ligence calculated  to  have  that  result,  and  such  culpable 
negligence  has  been  the  proximate  cause  of  leading  and  has 
led  the  other  to  act  by  mistake  upon  such  belief,  to  his  prej- 
udice, the  second  cannot  be  heard  afterwards,  as  against  the 
first,  to  show  that  the  state  of  facts  referred  to  did  not 
exist.* 

Another  rule  of  estoppel,  and  its  limitation,  founded  upon 
a  representation  made  by  a  vendor  to  a  person  advancing 
money  for  property  to  the  vendee,  whose  fraud  must 
cause  loss  to  one  or  the  other  of  two  persons,  was  stated : 
that  where  one  states  a  thing  to  another,  with  a  view  to  the 
other  altering  his  position,  or  knowing  that,  as  a  reasonable 
man,  he  will  alter  his  position,  then  the  person  to  whom  the 
statement  is  made  is  entitled  to  hold  the  other  bound,  and 
the  matter  is  regulated  by  the  state  of  facts  imported  by  the 
statement.8  But  the  reason  of  the  rule  ceases  at  once  when 
a  stranger  to  the  arrangement  seeks  to  avail  himself  of  the 
statements  which  were  not  made  as  a  basis  for  him  to  act 
upon.  They  are  for  a  stranger  evidence  against  the  party 
making  the  statement,  but  no  more  than  evidence  which 
may  be  rebutted  ;  between  the  parties  they  form  an  estoppel 
at  law.4 

1  Carr  t>.  London  Ry.  Co.  L.  R.  10  4  Wegh  v.  Boylan,  85  N.  Y.  398 ; 

C.  P.  817.    (Brett,  J.).  Knights  v.  Wiffln,  L.  R.  5  Q.  B.  660. 

»  Ibid,  p.  818.  (Mellor,  J.),  citing  Blackburn  Sales, 

«  Knights  v.  Wiffln,  L.  R.  5  Q.  B.  162. 
060  (Blackburn,  J.). 


ESTOPPEL,  IN  FAVOR  OF  PLEDGEES.  587 

§  435.  ESTOPPEL,  BY  REPRESENTATIONS  UPON  NON-NE- 
GOTIABLE COLLATERAL. — A  bona  fide  pledgee  for  value, 
without  notice  of  fraud  or  other  equities,  is  protected,  un- 
der approved  rules  of  estoppel  in  pais,  where  the  obligor 
upon  the  non-negotiable  chose  in  action  has  declared  upon 
its  face,  or  by  indorsement,  that  he  has  no  defenses,  equi- 
ties, or  set-offs  to  the  debt  or  duty  secured,  or  that  the 
consideration  has  been  paid  in  full,  or  other  like  representa- 
tions.1 Such  declarations  of  "no  defenses,  equities  or  set- 
offs,"  made  by  the  debtor  in  writing  and  generally  under 
seal,  forms  muniments  of  title,  and  are  conclusive,  under 
estoppel,  when  such  choses  in  action  are  in  the  possession 
of  bona  fide  pledgees,  for  value  advanced  on  the  credit  of 
such  representations,  without  notice  of  fraud.8  Nor  is  the 
benefit  of  such  declarations  confined  to  the  first  holder  for 
value.  A  sub-pledgee  of  sucli  non-negotiable  collaterals, 
advancing  value  in  good  faith,  without  notice,  takes  a  good 
title  as  against  the  obligor,  who  is  estopped  to  set  up  any 
defense  in  opposition  to  his  own  declarations  made  to  be 
acted  upon  by  successive  assignees  of  the  non-negotiable 
security.8 

§  436.  ESTOPPEL  OF  OWNER,  IN  CASES  OF  TORTIOUS 
PLEDGE. — The  rules  of  estoppel  in  pais  are  enforced  against 
an  owner  of  a  non-negotiable  chose  in  action,  who  has,  with 
mistaken  confidence,  entrusted  the  indicia  of  title  and  the 
apparent  absolute  ownership,  by  indorsement  and  delivery 
to  a  third  person,  so  that  he  is  able  to  deceive  bona  fide 
pledgees,  advancing  value  upon  the  faith  and  credit  of  such 
documents  of  title  and  apparent  absolute  ownership,  with- 
out notice  that  the  act  of  pledge  is  a  fraudulent  misappro- 
priation and  an  unauthorized  act.4  The  only  limitation 

1  Smyth  <p.  Munroe,  84  N.  Y.  354  ;  •  Ashton's  App.  73  Pa.  St.  153. 

Payne  ».  Burnham,  62  Ib.  69.  *  Combes  ».  Chandler,  33  Ohio  St. 

*Wegh  0.  Boy  Ian,  85  N.  Y.  394;  178;  Moore  v.  Bank,  55  N.  Y.  41; 

Ryall  v.  Howies,  W.  &  T.  Lead  Cas.  McNeil  0.  Tenth  Nat.  Bank,  46  Ib. 

2,  pt.  2,  1673.  325;  Horn  v.  Cole,  51   N.  H.  287; 


588  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 

upon  the  application  of  estoppel  upon  this  ground  is,  that  it 
must  be  the  affirmative  act  of  the  owner  himself  in  confer- 
ring such  ownership  that  has  enabled  the  deceit  to  be  prac- 
ticed upon  the  innocent  pledgee.1  The  payee  of  a 
non-negotiable  certificate  of  deposit  who  has  indorsed  the 
same  in  blank  and  entrusted  it  to  another  person,  will  have 
no  defense  as  against  an  innocent  pledgee  receiving  the 
same  from  such  fraudulent  person  for  an  advance,  without 
notice.  The  pledgee  will  hold  the  collateral  security  free 
from  equities  existing  between  the  pledgor  and  the  payee. 
The  apparent  ownership  and  legal  right  to  the  collateral  be- 
ing vested  in  the  pledgor,  the  pledgee  may,  in  good  faith, 
safely  loan  his  money  to  him.*  The  rule  is  applied  where 
the  owner  of  a  deposit  in  a  bank  indorses  his  letter-of  credit 
in  blank,  and  hands  the  same  to  a  third  person  who  misap- 
propriates it.8  A  cestui  que  trust  is  not  allowed  to  impeach 
the  title  of  a  pledgee  for  value,  of  a  non-negotiable  chose  in 
action,  part  of  the  trust  estate,  where  the  trustee  is  clothed 
with  full  power  in  its  management,  and  the  security  is  re- 
ceived in  good  faith,  and  without  notice.4  The  title  of  an 
innocent  holder  for  value  cannot  be  defeated  by  the  owner, 
who  has  conferred  such  title  and  apparent  ownership  on  the 
person  by  whom  the  securities  have  been  assigned,  upon 
any  claim  of  infirmity  in  the  title  thus  conferred,  or  the  in- 
validity of  the  collateral  security.* 

§  437.  THE  INNOCENT  PLEDGEE  FOR  VALUE  PROTECTED, 
AS  AGAINST  OWNER. — The  real  owner  of  goods  who  suffers 
another  to  have  possession  of  his  property,  or  of  those  docu- 

Cowdrey  v.  Vanderburgh,  101  U.  8.  '  Davis  t>.  Beckstein,  69  N.  Y.  442. 

572 ;  Merchants'  Bank  v.  Phoenix,  »  International    Bank  v.   German 

etc.  Co.  L.  R.  5  Ch.  D.  217  (Jessell,  Bank,  71  Mo.  183. 

M.  R.);  Briggs  v.  Jones,  L.  R.  10 Eq.  *  Weirick  «.  Mahoning  Co.  Bank, 

92  ;   Herrick  v.  Attwood,   25  Beav.  16  Ohio  St.  296. 

205 ;  2  DeG.  &  J.  21 ;    Vickers  v,  *  Dillaye  v.  Commercial  Bank,  51 

Hertz,  L.  R.  2  Sc.  App.  113 ;  Good-  N.  Y.  345. 

win  v.  Robarts,  L.  R.  10  Ex.  76,  337;  •  Clark  t>.  Roberts.  25  Hun,  80. 

1  App.  476. 


ESTOPPEL,  IN  FAVOE  OF  PLEDGEES.        589 

ments  which  are  the  evidence  of  property,  is  bound  by  a  sale 
or  pledge  which  he  has  enabled  the  other  person  to  make. 
So  long  as  the  document  of  title  remains  in  the  possession  of 
the  person  who  fraudulently  obtained  it,  the  vendor,  who 
has  been  cheated  out  of  its  possession,  may  reclaim  and  re- 
cover it;  but  at  the  moment  such  document  of  title  passes 
into  the  hands  of  a  holder  for  value,  a  pledgee,  to  whom  it 
is  indorsed  for  a  valuable  advance,  made  in  good  faith,  with- 
out notice,  the  right  of  the  vendor  to  follow  it  is  at  an  end. 
This  rule  was  applied  by  the  Privy  Council  of  England, 
where  a  document  of  title  of  property,  obtained  by  a  vendee 
by  fraud,  was  at  once  indorsed  for  a  valuable  consideration, 
without  notice.  The  fraudulent  person  became  bankrupt, 
and  the  owners  lost  their  property  by  reason  of  the  transfer 
to  a  pledgee  who  received  the  same  bona  fide,  for  a  valuable 
consideration,  and  in  ignorance  of  the  fraud.1  "  The  pos- 
session was  not  only  united  to  the  previous  owner- 
ship with  the  consent  (however  obtained)  of  the  person 
temporarily  entitled  to  it,  but  transferred  for  the  express 
purpose  of  giving  to  the  owner  [the  pledgee]  an  absolute  do- 
minion over  his  own  property."  and  the  principle  was  an- 
nounced that  an  ownership  at  the  time  perfect  at  law,  though 
voidable  as  to  part,  viz.,  the  possession,  cannot  in  principle 
be  treated  differently  from  an  ownership  voidable  as  to  the 
whole,  but  in  the  interim  protected  by  the  interposition  of 
a  bona  fide  purchaser,  for  a  valuable  consideration  (applied 
in  the  principal  case  to  a  bona  fide  pledgee,  for  a  valuable 
consideration). 

The  rule  of  estoppel  by  conduct  is  applied  in  cases 
where  a  vendee  obtains  possession  of  a  chattel,  with  the  in- 
tention, by  the  vendor,  to  transfer  both  the  property  and 
possession,  although  the  vendee  has  committed  a  false  and 
fraudulent  misrepresentation  in  order  to  effect  the  contract 
or  obtain  the  possession.  The  property  vests  in  the  vendee 
until  the  vendor  has  done  some  act  to  disaffirm  the  transac- 

1  The  Marie  Joseph,  L.  R.  1  Pr.  C.  219.  (Lord  Chelmsford,  Lord  Chan.) 


590  NON-NEGOTIABLE  COLLATERAL   SECURITIES. 

tion,  and  the  legal  consequence  is,  that  if  before  the  dis- 
affirmance  the  fraudulent  vendee  has  transferred  the  whole 
or  a  partial  interest  in  the  chattel  to  an  innocent  transferee, 
the  title  of  such  transferee  is  good  against  the  vendor.1 
The  doctrine  of  estoppel  by  conduct  was  enforced  where  a 
bill  of  exchange,  the  drawing  and  indorsements  of  which 
were  forgeries,  having  been  accepted  for  honor,  were  dis- 
counted by  a  bank.  Upon  discovery  of  the  forgery,  the 
bank  sued  the  acceptor,  and  it  was  held,  by  the  Court  of 
Common  Pleas,  that  as  the  acceptor  had  induced  the  bank 
to  part  with  its  money  upon  the  faith  of  his  authentication 
of  the  bill,  he  was  estopped  to  dispute  its  genuineness.8  But 
the  payment  of  a  bill  of  exchange,  the  name  of  the  acceptor 
being  forged,  by  such  acceptor,  raises  no  estoppeljis  against 
him  upon  the  forgery  of  his  name  as  acceptor  upon  another 
bill,  held  by  the  same  person.8 

§  438.  ESTOPPEL,  UNDER  INDORSEMENT  OF  CHOSES  IN 
ACTION. — The  principle  of  estoppel  by  conduct  that,  when  the 
owner  of  property  in  any  form  clothes  another  with  the  ap- 
parent title  and  power  of  disposition,  third  parties  who  are 
thereby  induced  to  deal  with  him,  are  protected,  is  applied 
to  choses  in  action,  non-negotiable  in  character.4  The  de- 
livery of  choses  in  action  indorsed  in  blank  as  collateral 
security  for  value,  transfers  the  property  to  the  pledgee, 
and  authorizes  him  to  write  over  the  signature  a  formal  and 
regular  assignment,  if  it  should  become  necessary,  or  if  the 
pledgee  should  think  it  is  for  his  interest  so  to  do.  An  in- 
dorsement in  blank  of  such  non-negotiable  securities  is  suf- 
ficient where  they  are  payable,  under  statutory  enactments, 
to  the  person  to  whom  issued,  his  representatives  or  assigns, 
the  same  appearing  upon  the  face  of  the  certificates,  and 

1  Kingsford  v.  Merry,  11  Ex.  577.  *  Morris  v.  Bethell,  L.  R.  5  C.  P.  47. 

(Pollock,   C.  B),  a  case  of  pledge  ;  4  Cowdrey  v.  Vaudenbergh,  101  U. 

Dyer  v.  Pearson,  3  B.  &  C.  42.  S.  572,  575 ;  McNeil  v.  Tenth  Nat. 

»  Phillips  v.  Im  Thorn,  L.  R.  1  C.  Bank,  46  N.  Y.  325. 
P.  463. 


ESTOPPEL,  IN  FAVOR  OF  PLEDGEES.       591 

are  an  appropriation  of  some  distinctive  fund.  A  pledgee 
loaning  money  in  good  faith  to  a  person  holding  such  certi- 
ficates indorsed  in  blank  comes  within  the  rule  of  estoppel 
stated,  no  knowledge  or  notice  being  chargeable  against 
him  by  reason  of  his  dealing  with  an  apparent  owner  of  non- 
negotiable  securities  under  blank  indorsement.  No  sus- 
picion arises  that  the  pledgee  acquired  them  unfairly ;  on  the 
contrary,  the  possession  of  such  certificates  by  the  pledgor 
indorsed  in  blank  is  prima  facie  evidence  of  ownership.  In 
cases  of  non-negotiable  certificates,  where  transfer  by  in- 
dorsement in  blank  is  ordinarily  used,  and  appears  in  the 
hand-writing  of  the  original  holder,  the  pledgee  is  entitled 
to  the  benefit  of  the  legal  presumption  in  favor  of  his  right 
which  always  arises  from  possession,  until  the  contrary  ap- 
pears.1 In  other  cases,  where  the  non-negotiable  chose  in 
action,  the  subject  of  pledge,  is  merely  a  statement  of  the 
auditing  and  allowing  of  an  account  for  work  done,  by  a 
municipal  officer,  but  with  no  promise  to  pay  any  sum  of 
money,  nor  an  order  upon  any  person  or  fund  for  the  pay- 
ment of  money,  and  no  element  of  estoppel  arises  to  con- 
trol the  relations  of  the  parties,  pledgees,  or  parties  claim- 
ing under  them  by  purchase,  can  take  such  interest  only  as 
was  originally  pledged  by  the  owner.  Any  holder  of  such 
a  certificate  is  subject  to  the  equities  of  the  real  owner, 
whether  chargeable  with  notice  or  not,  so  long  as  the  same 
remains  indorsed  in  blank.  Should,  however,  the  power  to 
fill  up  such  blank  with  an  absolute  assignment  be  exercised 
by  the  pledgee,  the  presumption  from  the  delivery  of  a 
chose  in  action  indorsed  in  blank  as  collateral  security 
being  prima  facie  an  authorization  to  the  pledgee  so  to  do, 
and  the  same  is  transferred  to  an  innocent  holder  for  value, 
by  a  like  absolute  assignment,  the  owner  may  be  estopped 
in  the  case  of  any  chose  in  action.9  The  pledgor  in  the 

'  Baldwin  v  Ely,  9  How.  580.  to  McNeil  t>.  Tenth  Nat.  Bank,  46  N. 

*  Owdrey  v.  Vandenbergh,  101  U.  Y.  325,  say:  "  The  rights  of  inno- 

S  572  576.  The  United  States  Su-  cent  third  parties,  as  the  court  there 

pi-erne'  Court  (Field,  Jus.),  referring  observes,  'do  not  depend  upon  the 


692 


NON-NEGOTIABLE  COLLATERAL  SECURITIES. 


case  of  Moore  v.  Metroplitan  National  Bank,1  received  tlie 
non-negotiable  certificate  from  the  owner  indorsed  with  an 
absolute  assignment,  and  upon  his  fraudulent  deposit  of  the 
certificate  as  collateral  security  with  the  bank,  an  absolute 
assignment  to  the  pledgee  was  in  turn  executed  by  him. 

§  439.     MOORE  v.  METROPOLITAN  NATIONAL  BANK. — A 
leading  case  on  the  law  of  estoppel  in  pais,  as  applied  to 


actual  title  or  authority  of  the  party 
•\7ith  whom  they  deal  directly,  but 
are  derived  from  the  act  of  the  real 
owner,  which  precludes  him  from 
disputing,  as  against  them,  the  exis- 
tence of  the  title  or  power  which, 
through  negligence  or  mistaken  con- 
fidence, he  caused  or  allowed  to  ap- 
pear to  be  vested  in  the  party  making 
the  conveyance.'  Here  the  complain- 
ants could  have  expressed  in  their 
indorsement  the  purpose  of  the  de- 
posit of  the  certificate  with  Blumen- 
burgh, — that  it  was  as  security  for  a 
specified  sum  of  money, — and  thus 
imparted  notice  to  all  subsequent 
purchasers  or  assignees  that  the 
pledgee  held  only  a  qualified  interest 
in  the  claim.  But  having  indorsed 
their  name  in  blank,  they  virtually 
authorized  the  holder  to  transfer  or 
dispose  of  the  certificate  by  writing 
an  absolute  assignment  over  their 
signature.  Had  it,  therefore,  ap- 
peared in  this  case  that  Cowdrey 
paid  any  money  for  the  certificate, 
and  took  it  with  the  assignment 
•which  he  himself  afterwards  wrote 
over  the  signature  of  the  complain- 
ants, we  are  inclined  to  think  that  his 
defense  would  have  been  sustainable. 
But  as  he  has  not  shown  that  lie 
parted  with  any  value  for  the  claim, 
and  no  assignment  was  at  the  time 
indorsed  over  the  blank  signature, 
he  must  be  treated  as  standing  in  the 


shoes  of  his  alleged  vendor,  Blumcn- 
burgh." 

1  55  N.  T.  41.  Moore  was  the 
owner  of  a  certificate  of  indebted- 
ness of  the  State  of  New  York  for 
$10,000,  which  he  was  induced  to 
deliver  to  one  Miller  with  the  in- 
dorsement thereon,  "$10,000.  For 
value  received,  I  hereby  transfer 
and  set  over  to  Isaac  Miller  the 
within  described  amount,  say  $10,- 
000.  Levi  Moore."  The  assignment 
was  obtained  by  false  representa- 
tions of  Miller,  and  upon  an  agree- 
ment to  return  the  certificate  if  not 
sold  within  three  weeks.  After  the 
expiration  of  the  time  agreed  upon, 
Miller,  by  a  similar  indorsement, 
assigned  the  certificate  to  the  Metro- 
politan National  Bank  as  collateral 
security  for  his  promissory  note, 
which  the  bank  discounted.  An 
equitable  suit  was  brought  by  Moore 
to  restrain  the  bank  from  disposing 
of  and  to  recover  possession  of  the 
certificate.  The  suit  was  dismissed, 
the  claim  of  the  bank  being  sup- 
ported as  a  bona  fide  pledgee  for 
value.  The  case  is  cited  and  ap- 
proved in  Driscoll  v.  West  Bradley 
Co.  59  N.  Y.  96,  101;  Armour  t. 
Michigan  Central  R.  R.  Co.  65  II). 
Ill,  188;  Wcgh  v.  Boylan.  85  Ib. 
394,  401  ;  and  explained  in  Trustees 
«.  Wheeler,  61  Ib.  114. 


ESTOPPEL,   IN  FAVOR  OF  PLEDGEES.  593 

non-negotiable  collateral  securities,  Moore  v.  Metropolitan 
National  Bank1  arose  from  the  misappropriation  as  collateral 
security  of  a  non-negotiable  chose  in  action  by  one  who  was 
entrusted  with  the  title  and  apparent  ownership.  The  court 
(Grover,  J.)  stated  the  argument :  "  The  reasons  are  that 
such  purchase  was  made  upon  the  faith  of  the  title  which 
the  owner  had  apparently  given,  and  that  it  would  be  con- 
trary to  justice  and  good  conscience  to  permit  him  to  assert 
his  real  title  against  an  innocent  purchaser  from  one  clothed 
by  him  with  all  the  indicia,  of  ownership  and  power  of  dis- 
position. Another  reason  was,  that  were  the  rule  other- 
wise, it  would  afford  opportunities  for  the  perpetration  of 
frauds  upon  the  purchasers  from  such  apparent  owners. 
Where  one,  known  to  be  the  owner  of  shares  or  chattels, 
delivers  to  another  the  scrip  or  possession  of  the  chattels, 
together  with  an  absolute  written  transfer  of  all  his  title 
thereto,  he  thereby  enables  him  to  hold  himself  out  as  owner, 
and,  as  such,  obtain  credit  upon  and  make  sales  of  the  prop- 
erty; and  if,  after  he  had  so  done,  the  owner  was  permitted 
to  come  in  and  assert  his  title  against  those  dealing  upon 
the  faith  of  these  appearances,  the  dishonest  might  combine 
and  practice  the  grossest  frauds.  Another  reason  is,  that 
it  presents  a  proper  case  for  the  application  of  the  legal 
maxim  that,  where  one  of  two  innocent  parties  must  sustain 
a  loss  from  the  fraud  of  a  third,  such  loss  should  fall  upon 
the  one,  if  either,  whose  act  has  enabled  such  fraud  to  be 
committed.  All  these  reasons,  it  is  obvious,  apply  with  all 
their  force  to  choses  in  action." 

It  was  claimed  that  a  different  rule  should  be  applied  to 
the  merely  equitable  title  acquired  by  the  assignee  of  a 
chose  in  action  than  to  the  legal  title  obtained  upon  a  trans- 
fer of  shares  of  stock  or  chattels,  but  the  court  said :' 
"  Upon  what  ground  the  same  state  of  facts  that  will  estop 
a  party  from  the  assertion  of  a  legal  title  will  not  also  estop 
him  from  the  assertion  of  an  equitable  one  the  counsel  fails 

»65N.  Y.48.  «55N.  Y.43. 

38 


594  NON-NEGOTIABLE  COLLATERAL  SECURITIES. 

to  show,  for  the  very  good  reason  that  no  such  ground  exists. 
It  is  so  obvious  that  the  estoppel  should,  upon  principle, 
apply  to  the  Jatter  equally  with  the  former,  that  a  distinc- 
tion can  only  be  justified  upon  authority." 

§440.  ESTOPPEL  OF  CORPORATIONS,  AS  AGAINST  INNO- 
CENT HOLDERS  FOR  VALUE.  —  Equitable  estoppel  arose 
against  a  corporation  which  issued  non-negotiable  choses  in 
action  purporting  to  be  issued  pursuant  to  powers  conferred 
by  statute,  although  the  issue  was  illegal  and  in  violation  of 
statutory  powers,  when  in  the  hands  of  an  innocent  holder 
for  value.  As  said  by  Mellor,  Judge  of  the  Court  of  Queen's 
Bench,1  "  I  wish  to  rest  my  jadgment  on  the  general  doc- 
trine of  estoppel.  *  *  *  The  holder  may,  by  a  writing 
under  his  hand,  transfer  the  mortgages  to  any  person,  and 
the  Act  gives  the  form  of  indorsement  by  which  the  trans- 
fer may  be  made.  There  is  a  provision  for  registering  the 
transfer,  and  when  that  is  completed  any  person  who  is  an 
innocent  holder  has  a  complete  title.  The  commissioners, 
who  have  borrowed  the  money  and  enabled  the  transfer  of 
the  mortgage,  cannot  afterwards  deny  their  liability  on  the 
ground  that  the  mortgage  was  given,  not  for  money  lent, 
but  for  some  purpose  which  they  allege  to  be  illegal." 
The  Chief  Justice  (Cockburn):4  "The  commissioners 
might  be  wrong  in  allowing  these  debentures  to  go  forth, 
knowing  that  they  might  come  into  the  hands  of  an  innocent 
holder  for  value,  but  they  are  estopped  from  alleging  that 
the  debentures  were  illegally  issued."  And  Blackburn  (J.):* 
"  t  hold  that  the  commissioners,  who  have  stated  on  the 
face  of  the  mortgages  that  money  had  been  advanced  and 
lent  on  the  credit  and  for  the  purposes  of  the  commissioners, 
are  precluded  as  against  bona  fide  transferees  from  denying 
the  truth  of  that  statement." 

1  Webb  v.  Hcrnc  Bay  Comm.  L.  supra,  p.  651 ;  Pickard  v.  Sears,  6 

R.  5  Q.  B.  642,  655 ;  In  re  Bahia  &  A.  &  E.  469. 

S.  F.  Ry.  Co.  L.  R.  3  Q  B.  583;  s  Webb   ».    Herne    Bay    Comm. 

Freeman  v.  Cooke,  2  Ex.  654.  supra,  p.  653,  654. 

*  Webb    v.    Herne   Bay    Coinm. 


THE  PLEDGEE'S  RIGHTS  AND  DUTIES.  595 


CHAPTER  XLVI. 

THE  PLEDGEE'S  RIGHTS  AND  DUTIES. 

§441.  The  pledgee's  application  of  non-negotiable  collateral. 

442.  The  pledgee's  duty  as  to  collection. 

443.  The  pledgee's  sale  of  non-negotiable  collateral. 

444.  The  pledger's  rights  upon  wrongful  sale  or  sub-pledge. 

445.  Tally  v.  Freedman's  Saving  and  Trust  Company. 

446.  The  pledgee's  remedies,  at  law  and  in  equity. 

447.  The  pledgee's  recovery  on  choses  in  action. 

448.  Payment  and  discharge  of  pledger. 

§441.  THE  PLEDGEE'S  APPLICATION  OP  NON-NEGOTIA- 
BLE COLLATERAL. —  The  pledgee  of  non-negotiable  choses 
in  action  is  not  any  more  entitled  than  any  other  holder  of 
collateral  securities  to  retain  a  surplus  arising  from  a  sale  or 
collection,  after  satisfaction  of  the  debt,  upon  a  claim  to 
apply  such  surplus  to  some  account  other  the  principal  debt 
secured.  Life  insurance  policies  were  transferred,  by  in- 
dorsement and  delivery,  as  collateral  security  for  a  certain 
indebtedness.  The  pledger  having  deceased,  the  pledgee 
sold  the  insurance  policies,  realizing  more  than  enough  to 
pay  the  particular  debt,  and  then  sought  to  apply  the  sur- 
plus in  payment  of  simple  contract  debts,  to  the  injury  of 
specialty  creditors.  The  pledgee  also  claimed  a  general 
lien  as  executor.  The  surplus  remaining  was  required  to  be 
paid  over  for  the  benefit  of  the  specialty  creditors.1  Gener- 
ally, clear  evidence  is  required  of  an  express  agreement  or 

1  Talbott  «.  Frere,  L.  R.  9  Ch.  D.  L.  R.  14  Eq.  507,  in  which  an  sx- 

568;  overruling  Spalding  «.  Thomp-  ecutor's  lien,  under  such  circumstan- 

son,  26  Beav.  367 ;  In  re  Haselpot's  ces,    attached    even   to   unsecured 

Est.  L.R.  13  Eq.  327 ;  ex  parte  Bank,  debts. 


596  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 

understanding  by  the  parties  to  the  contract  of  pledge  that 
the  pledgee  may  apply  the  money  realized  upon  a  pledge  of 
insurance  policies,  a  loss  having  occurred,  to  any  other  debt 
or  liability  than  that  for  which  they  were  specifically 
pledged,  in  order  to  entitle  the  pledgee  to  make  such  appli- 
cation.1 The  rule  applies  to  transactions  with  brokers,  upon 
deposit  of  securities  for  the  benefit  of  holders  of  notes  en- 
trusted to  such  brokers  for  sale.  In  the  absence  of  agree- 
ment, the  equity  thus  created  is  preferred  as  against  the 
claim  of  brokers  seeking  to  appropriate  the  proceeds  of  such 
securities  to  personal  loans  to  customers  for  which  no  col- 
lateral security  was  deposited.  Notwithstanding  the  cus- 
tomers may  have  become  insolvent,  the  equitable  rule 
which,  on  proper  occasions,  extends  securities  to  other  debts, 
is  not  applied  to  such  transactions.9 

Parties  to  the  contract  of  pledge  may  extend  the  benefit 
of  collateral  securities  held  by  the  pledgee  to  other  debts 
and  obligations  of  the  .pledger  other  than  those  originally 
secured.  An  agreement  that  insurance  policies,  pledged 
for  a  specific  debt,  should  be  applied  to  cover  **  any  and  all 
pecuniary  obligations  "  of  the  pledger,  entitled  the  pledgee 
to  apply  the  proceeds  of  the  collateral  securities  in  payment 
of  the  whole  debt  due.8  And  the  same  rule  as  to  the  dispo- 
sition of  the  surplus  resulting  from  the  realization  of  collat- 
eral securities  was  .applied  in  favor  of  a  third  person,  where 
policies  of  insurance  had  been  pledged,  and  then  sub-pledged, 
and  the  pledgee  directed  the  sub-pledgee  to  hold  such  sur- 
plus for  the  benefit  of  such  third  person,  making  advances 
thereon,  of  which  assignment  notice  was  also  given  by  the 
beneficiary.4 

§  442.  THE  PLEDGEE'S  DUTY  AS  TO  COLLECTION. — The 
pledgee  of  non-negotiable  choses  in  action  is  required  to 

1  Bulkley  t>.  Garrett,  60  Pa.  St.  333.         «  Myers  v.  United  Guaranty  Co.  7 
«  James'  App.  89  Pa.  St.  54.  DcG.  M.  &  G.  112. 

1  Boardman  c.  Holmes,  124  Mass. 
438. 


THE  PLEDGEE'S  EIGHTS  AND  DUTIES.  597 

exercise  reasonable  care  and  diligence  in  their  collection.1 
Upon  as  assignment  of  a  lease  as  collateral  security  for  a 
note,  the  pledgee  should  collect  the  rents.  Such  collections 
are  applied  upon  the  note,  at  maturity.9  The  failure  of  a 
pledgee  to  collect  non-negotiable  collateral  securities,  or  to 
enforce  agreements  made  by  third  persons  assigned  to  them, 
so  that  the  collaterals  are  eventually  lost  through  the  sub- 
sequent insolvency  of  the  parties,  is  not,  in  the  absence  of 
gross  negligence  or  fraud,  such  a  default  as  to  render  a 
pledgee  liable  for  the  consequent  injury  to  the  pledger.* 
The  pledgee  of  a  part  interest  in  a  note,  is  under  no  obliga- 
tion to  pursue  its  collection ;  and  if  lost,  is  not  chargeable 
with  the  full  amount,  or  any  part  of  the  note.4  Upon  a 
discount  of  commercial  paper,  a  judgment  against  a  third 
party  was  assigned  as  collateral  security,  with  power  of  sale 
upon  default.  At  the  time  of  the  pledge,  the  judgment 
debtor  could  have  satisfied  the  judgment,  but  when  enforced 
at  the  request  of  the  pledgor,  his  property  had  been  ex- 
hausted by  previous  levies.  Evidence  not  being  admissible 
to  change  the  written  contract  of  pledge,  the  pledgee  was 
not  required  to  collect  the  judgment  until  maturity  of  the 
principal  debt  and  default,  and  the  pledgor,  who  remained 
the  general  owner  of  the  collateral  security,  should  have 
enforced  its  collection  himself.'  The  pledgee,  however,  is 
answerable  for  the  face  value  of  non-negotiable  collateral 
securities  where  they  are  lost  by  reason  of  his  inexcusable 
default,  although  such  loss  is  not  presumed  from  mere  non- 
collection.4 

§  443.    THE  PLEDGEE'S  SALE  OP  NON-NEGOTIABLE  COL- 
LATERAL.— In  the  absence  of  any  special  contract  giving  a 

1  Whittaker    v.    Charleston    Gas.  •  Word  D.  Morgan,  5  Sneed,  79 ; 

Co.  16  W.  Va.  717.  Wellsburg  Bank  v.  Kimberlands,  16 

s  Dewey  v.  Bowman,  8  Cal.  145.  W.  Va.  555;  Williams  «.  Price,  1 

8  Runals  v.  Harding,  83  111.  75.  Sim.  &  S.  581 ;  Reeves  v.  Plough, 

4  Smouse  t>.  Bail,  1  Grant's  Cas.  41  Ind.  204;  Burrows  ».  Bangs,  34 

397.  Mich.  304. 
*  Bast  «.  Bank,  101  U.  S.  93. 


598  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 

power  of  sale  of  choses  in  action  held  as  collateral  security, 
the  pledgee  is  not  entitled  to  sell  such  collaterals,  except  af- 
ter due  demand  of  the  principal  debt,  and  det'.mlt,  and  reas- 
onable notice  of  the  time  and  place  of  sale.1  Nor  will  a  court 
of  equity  decree  a  sale  of  non-negotiable  collateral  securi- 
ties, in  aid  of  a  pledgee  for  value,  where  there  is  no  right  to 
sell  such  securities,  and  no  contract  authorizing  a  sale.* 
Where  a  power  of  sale  of  such  collaterals,  either  public  or 
private,  upon  default,  without  notice  to  the  pledger,  is  given 
in  a  contract  of  pledge,  it  is  optional  with  the  pledgee 
whether  he  will  at  once  proceed  to  sell  upon  default.  Any 
extension  of  time  or. delay  in  making  sale,  is  a  benefit  to  the 
pledgor,  as  it  increases  his  opportunity  to  redeem  his  collat- 
eral securities.* 

§  444.  THE  PLEDGOR'S  RIGHTS  UPON  WRONGFUL  SALE 
OR  SUB-PLEDGE. — The  right  of  the  pledgor  to  recover  his 
non-negotiable  choses  in  action  where  the  pledgee  has  as- 
sumed, before  maturity  of  the  principal  note,  to  sub-pledge 
or  sell  the  same,  is  subject  to  the  equitable  limitation  that 
he  must  first  have  tendered  or  paid  the  loan  to  secure  the 
payment  of  which  the  collateral  was  deposited.  The  act  of 
the  pledgee,  in  either  case,  is  not  such  a  destruction  of  his 
special  interest  in  such  collateral,  as  to  destroy  the  contract 
of  pledge,  and  entitle  the  pledgor  to  demand  return  of  the 
collateral  from  the  sub-pledgee  or  purchaser,  without  a 
tender  or  payment  of  his  debt.4  This  equitable  rule  was 
enforced  in  the  United  States  Supreme  Court,  in  Talty  v. 
Freedman's  Savings  and  Trust  Company,6  where  the  col- 
lateral security  was  a  non-negotiable  certificate  for  work 
and  materials  issued  by  the  commissioners  of  audit  of  the 

1  Dewey  v.  Bowman,  8  Cal.  145;  Trust  Co.  93  U.  S.  321;  Johnson  t>. 

Robinson  ».  Hurley,  11  Iowa  410.  Stear,  15  C.  B.  N.  S.  330;  Donald  v. 

'Whittaker  v.  Charleston  Gas.  Suckling,  L.  R.  1  Q.  B.  585;  Hnlli- 

Co.  16  W.  Va.  717.  day  v.  Holgate  L.  R.  3  Eq.  299. 

«  Robinson  v.  Hurley,  11  Iowa,  410.  •  93  U.  S.  321. 

*  Talty  v.  Freedman's  Savings  and 


THE  PLEDGEE'S  RIGHTS  AND  DUTIES.  599 

city  of  Washington,  indorsed  in  blank;  and  by  the  Court  of 
Queen's  Bench  of  England,  in  Donald  v.  Suckling,'  a  case 
arising  from  a  sub-pledgee  of  debentures,  non-negotiable. 
The  debentures  were  deposited  by  A  with  B  as  collateral 
for  a  bill  of  exchange  indorsed  by  A  and  discounted  by  B, 
with  power  of  sale  upon  default.  B,  before  maturity  of  the 
bill,  sub-pledged  the  debentures  to  G  for  a  larger  sum  than 
the  amount  of  the  bill.  The  bill  being  dishonored  and 
unpaid,  A,  without  tender  or  payment  of  the  debt  to  either 
the  pledgee  or  sub-pledgee,  brought  detinue  against  C.  The 
action  was  dismissed.* 

§445.  TALTY  v.  FREEDMAN'S  SAVINGS  &  TRUST  Co. 
• — In  this  leading  case,  involving  the  rights  of  a  purchaser 
under  a  sale  of  a  chose  in  action  held  by  a  pledgee  and  sold 
before  maturity  of  the  principal  debt,8  the  United  States 
Supreme  Court  (Matthews,  Jus.)  says  :  "  Kendig  was  not  a 
factor  with  a  mere  lien.  He  was  a  pledgee.  Tiie  collateral 
was  placed  in  his  hands  to  secure  the  payment  of  the  note. 
It  was  admitted  by  Talty  [the  pledger]  that  Kendig  was 

1  L.  R.  1  Q.  B.  585.  collateral.    The  note  was  sold  the 

*  L.    R.   1    Q.    B.   585     Opinions  same  day,  and  the  proceeds  paid  to 
•were  given  by  four  judges,  Cock-  Talty ;  and  a  short  time  afterwards 
burn,  C.  J.,  Blackburn  and  Mellor,  Kendig  sold  the  collateral  to    the 
JJ.,  in  favor   of    the    sub-pledgee;  Trust  Company,   a  bona  fide  pur- 
Shee,  J.,  dissenting.    Extracts  from  chaser,    and    with     the     proceeds 
the  opinions  are  given  in  Chap.  IX..  took    up    the    note.      An  offer    to 
§82,  p.  Ill,  n.  pay    the    principal    note    and    dc- 

*  93  U.  S.  321.    Talty  had  a  claim  mand  for  the  collateral  was  made 
against  the  city  of  Washington  for  by  Tally  a  few  days  before    ma- 
work  and  materials,  amounting  to  turity,  and    learning    of    the    sale, 
$6,096.75,  for  the  payment  of  which  after  making  a  demand,  he  obtained 
he  received  a  certificate  from  the  the  certificate  from  the  purchaser 
commissioners.      Two    days    after-  by  replevin.    No  tender  or  payment 
wards,    he     employed     Kendig,    a  was  made  by  Talty,  either  to  the 
broker,  to  negotiate  a  loan,  giving  purchaser  or  the  pledgee.    The  only 
him  his  sixty-day  note  of   $3,000,  disputed  fact  was  as  to  the  time 
payable  to  his  own  order,  and  in-  at  which  the  power  of  sale  was  to 
dorsed  in  blank,  and  the  certificate,  arise:    Kendig    claiming    at    once; 
also  indorsed  in  blank,  to  be  used  as  Talty,  upon  default,  at  maturity. 


600  NON-NEGOTIABLE   COLLATERAL  SECURITIES. 

authorized  to  sell  it  if  the  note  were  not  paid  at  maturity. 
Kendig  had  a  special  property  in  the  collateral.  He  was  a 
pawnee  for  the  purposes  of  the  pledge.  *  *  A  tender  to 
the  second  pledgee  of  the  amount  due  from  the  first  pledger 
to  the  first  pledgee  extinguishes  ipso  facto  the  title  of  the 
second  pledgee  ;  but  that  there  can  be  no  recovery  without 
tender  of  payment  is  equally  well  settled.  But  it  is  sug- 
gested that  the  note  was  in  the  hands  of  Kendig,  and  that 
therefore  Talty  could  not  safely  pay  the  amount  due  upon 
it  to  the  holder  of  the  collateral.  The  like  fact  existed  in 
Donald  v.  Suckling.  It  is  not  adverted  to  in  the  arguments 
of  counsel,  nor  in  the  opinions  of  the  judges  in  that  case.  It 
could  not,  therefore,  have  been  regarded  by  either  as  of  any 
significance.  The  answer  here  to  the  objection  is  obvious. 
The  note,  a  few  days  before  its  maturity,  was  in  the  hands 
of  Kendig.  There  being  no  proof  to  the  contrary,  it  is  pre- 
sumed to  have  remained  there.  This  suit  was  commenced 
after  it  matured.  Talty  might  then  have  paid  the  amount 
due  upon  it  to  the  defendant  in  error  [the  purchaser  from 
the  pledgee]  and  could  thereupon  have  defended  success- 
fully in  a  suit  on  the  note,  whether  brought  by  Kendig 
or  any  indorsee  taking  it  after  due." 

§  446.  THE  PLEDGEE'S  REMEDIES,  AT  LAW  AND  IN 
EQUITY. — Equity  will  take  jurisdiction  where  there  are 
different  interests  as  between  the  owner  of  non-negotiable 
collateral  securities,  the  first  assignee,  and  the  subsequent 
pledgee,  thus  disposing  of  the  whole  litigation  in  one  suit.1 
And  where  necessary,  will  decree  a  foreclosure  and  order  a 
sale  of  such  collaterals,  upon  a  bill  filed  by  the  pledgee.*  A 
pledgee  will  be  aided  in  equity,  in  rendering  his  security 
available,  as  where  a  policy  of  insurance  was  pledged  as 
collateral  security  for  a  debt  and  the  pledger  died,  leaving 
his  estate  insolvent,  and  most  of  the  personal  representatives 
disclaimed,  and  no  administration  was  taken  out,  and  the 

1  Thayer  v.  Daniels,  113  Mass.  129.         •  Robinson  v.  Hurley,  11  Iowa,  410. 


THE  PLEDGEE'S  RIGHTS  AND  DUTIES.  601 

amount  of  the  principal  debt  was  three  times  that  of  the 
money  covered  by  the  insurance  policy.  The  company 
refused  to  pay  the  pledgee  the  insurance  money  because 
of  the  failure  to  appoint  a  representative  of  the  estate.  A 
court  of  chancery  dispensed  with  the  presence  of  the  legal 
representatives,  and  ordered  the  insurance  company  to  pay 
the  money  to  the  pledgee.1  Otherwise,  however,  where  the 
amount  coming  upon  the  policy  is  much  larger  than  the 
debt,  although  the  estate  be  insolvent.9  An  insurance  com- 
pany cannot  defeat  the  rights  of  a  pledgee  of  insurance 
policies  to  relief  by  insisting  that  no  assignment  can  be  made, 
without  the  written  consent  of  the  company,  as  such  pro- 
hibition has  no  application  to  a  deposit  as  collateral  secur- 
ity.8 A  bill  in  equity  to  redeem  a  certificate  of  member- 
ship of  the  New  York  Cotton  Exchange,  transferable  by 
assignment  under  certain  restrictions,  which  had  been 
pledged  as  collateral  security  for  a  promissory  note,  was 
bought  by  a  receiver  appointed  for  the  bankrupt  pledgor, 
after  a  tender  of  the  debt  and  demand  for  the  collateral 
securities.  Redemption  was  allowed  upon  the  equitable 
terms  of  payment  of  the  principal  debt.4  The  equitable 
character  of  an  interest  in  a  chose  in  action,  or  in  a  fund, 
possessed  by  the  holder,  is  not  of  itself,  sufficient  to  entitle 
him  to  proceed  in  equity.  Nor  will  the  aid  of  equity  be  given 
to  recover  moneys  alleged  to  be  due  under  collateral  con- 
tracts, as  a  complete  remedy  may  be  had  at  law.*  Nor  where 
there  is  no  right  to  sell  non-negotiable  collateral  securities, 
and  no  contract  authorizing  such  sale,  will  the  aid  of  a  court 
of  chancery  be  given  to  a  pledgee  praying  that  a  sale  may 
be  ordered.6  Equity,  however,  where  a  party  seeks  to  ob- 


1  Curtius  v.  Caledonian  Ins.  Co.,  L.  4  In  re  Werder,  15  Fed  Rep.  789  ; 

R.  19  Ch.  D.  534;  alike  case,  Cross-  Powell  v.  Waldron,  89  K  Y.  328; 

ley  v.  Glasgow  Ins.  Co.,  L.  R  4  Ib.  Hyde  ,.  Woods,  94  U.  S.  523. 

401  •  N.Y.  Guaranty,  etc.,  Co.  ».  Water 

» Webster  t>.  British  Empire  Ins.  Co-  l07  u-  s-  205- 

Co.,  L.  R.  15  Ch.  D.  169.  '  Whittaker  v.  Charleston  Gas  Co, 

«  Ellis  0.  Kreutzinger,  27  Mo.  811.  16  W'  Va'  717> 


602  NON-NEGOTIABLE  COLLATERAL  SECURITIES. 

tain  the  benefit  of  a  judgment  obtained  upon  a  debt  assigned 
as  collateral  security,  will  not  require  prior  resort  to  other 
securities  where  it  does  not  appear  they  are  of  greater  value 
than  the  excess  of  the  debt  secured  over  the  amount  of  the 
assigned  debt  and  judgment.1 

Courts  of  law  enforce  the  rights  of  pledgees  of  choses  in 
action,  and  equitable  assignments  of  funds.  Generally,  the 
real  party  in  interest  may,  under  statutory  or  code  enact- 
ments, bring  an  action  in  his  own  name,  against  the  parties 
bound  upon  such  collateral  securities,  or  holding  funds  sub- 
ject to  assignment.1  An  assignment  of  warrants  or  orders, 
drawn  by  one  municipal  officer  upon  another,  where  coun- 
tersigned and  registered  by  the  treasurer,  vests  the  legal 
title  in  the  assignee,  and  thus  enables  him  to  sue  in  his  own 
name.8  Where  an  assignor  of  a  non-negotiable  cliose  in  ac- 
tion collusively  dismissed  a  suit  brought  in  his  name  by  the 
assignee,  upon  learning  of  which,  the  assignee  brought  an- 
other suit,  a  court  of  law  refused  to  hold  the  second  suit 
barred  by  the  dismissal  of  the  first.4  The  receipt  of  an  in- 
surance policy  upon  the  life  of  a  debtor  as  collateral  security 
for  the  payment  of  a  debt,  is  not  of  itself  sufficient  to  con- 
stitute a  defense  to  an  action  of  debt  by  the  creditor  upon 
the  bond  representing  the  personal  indebtedness.* 

§  447. — THE  PLEDGEE'S  RECOVERY  ON  CHOSES  IN  AC- 
TION.— The  pledgee  holding  choses  in  action  as  collateral 
security  for  a  loan  or  other  valuable  consideration,  is  enti- 
tled to  collect  such  securities,  as  they  mature  or  become 
payable,  and  to  hold  the  proceeds  to  be  applied,  at  maturity, 
to  the  payment  of  the  debt.  The  pledgee  is  entitled  to  en- 

1  Batesville  Inst.  v.  Kauffinan,  18  »  People  v.  Johnson,  100  111.  537  ; 

Wall.  151.  Creighton  v.  Hyde  Park,  6  Braclw. 

8  Brice  «.  Bannister,  L.  R.  3  Q.  B.  274. 

Div.  569  ;   Field  v.  Megaw,  L.  R.  4  4  Welch  v.  Mandcville,  1   Wheat. 

Ib.  660  ;  Brown  v.  Bateman,  6  Ib.  236. 

272;  Whittakert).  Charleston  Gas  Co.  'Reeves  v.  Plough,  41  Ind.  204  ; 

16  W.  Va.  717  ;  Welch  v.  Mandeville,  Burrows  t>.  Bangs,  34  Mich.  304. 
1  Wheat.  236. 


THE  PLEDGEE'S  EIGHTS  AND  DUTIES.  603 

force  and  collect  the  full  face  value  of  such  collaterals  as 
against  the  parties,  being  responsible  to  the  pledger  for  any 
surplus,  after  payment  of  the  debt  and  proper  charges.  The 
actual  recovery  of  the  pledgee  is  limited  to  the  amount  of 
the  principal  debt,  with  interest,  as  where  a  deposit  was 
made  as  collateral  security  of  scrip  certificates  for  money 
due  at  the  United  States  Treasury  under  a  treaty,1  and  of 
a  non-negotiable  certificate  of  deposit  in  a  bank.5  Where 
the  payment  of  bills  of  exchange  were  secured  by  a 
non-negotiable  bond,  the  recovery  on  the  securit}'  was 
limited  to  the  amount  of  the  unpaid  bills,  with  interest  from 
maturity.3  An  unpaid  call  on  shares,  assigned  as  collateral 
security  proved  insufficient  because  of  ^misappropriation. 
The  pledgee  was  allowed  to  claim  in  insolvency  proceedings 
the  unpaid  portion  of  his  debt  against  the  company.4  Upon 
the  proceeds  from  property  covered  by  a  pledge  of  dock 
warrants,  about  the  ownership  of  which  there  was  much 
litigation,  proving  insufficient  to  discharge  the  principal 
debt,  the  pledgee  was  allowed  to  prove  not  only  the  unpaid 
portion  of  his  debt,  but  his  costs  in  the  litigation.5  A  fund 
was  deposited  with  a  third  person  to  hold  as  collateral  secu- 
rity for  the  performance  of  a  contract  to  buy  land,  give 
mortgages,  and  build  houses.  After  some  work  had  been 
done,  the  project  was  abandoned,  and  the  proceeds  of  the  sale 
under  foreclosure  proved  insufficient  to  pay  the  debt.  The 
person  for  whose  benefit  the  collateral  fund  was  deposited 
was  given  so  much  thereof  as  would  put  him  in  as  good  a 
plight  as  if  the  houses  had  been  finished.'  A  mortgagor 
assigned  a  lease,  with  privilege  of  renewal,  as  collateral 
security.  Upon  default  and  foreclosure,  a  deficiency  oc- 
curred. As  against  a  subsequent  pledgee  of  the  rent  due 


1  Baldwin  v.  Ely,  9  How.  580.  4  In  re  Kit  Hill  Tunnel  Co.,  L.  R 

8  International   Bank    v.  German  16  Ch.  D.  590. 

Band,  71  Mo.  183.  5  Ex  parte  Carr,  L.  R.  11  Ch.  D.  62. 

*  Orr  v.  Churchill,  1  H.  Bl.  232.  •  Kidd  v.  McCormick,  83  N.Y.  391. 


604  NON-NEGOTIABLE  COLLATERAL  SECURITIES. 

under  the  lease,  the  prior  pledgee  was  preferred  until  his 
debt  was  fully  paid.1 

§  448. — PAYMENT  AND  DISCHARGE  OF  PLEDGOB. — The 
pledger  of  non-negotiable  collateral  securities  is  entitled, 
with  other  pledgers,  to  a  return  of  his  securities,  upon  pay- 
ment of  the  principal  debt.  He  is  also  entitled  to  the  bene- 
fit, upon  settlement,  of  any  sura  which  has  been  collected  by 
the  pledgee  on  the  non-negotiable  choses  in  action  held  by 
him  as  collateral  security,  and  to  which  the  pledgor  would 
be  entitled  upon  payment  of  the  debt.*  The  lien  of  a 
pledgee  of  a  chattel  mortgage,  held  to  secure  the  payment 
of  a  debt,  is  discharged  by  a  tender  of  the  amount  due  by 
the  debtor  or  his  representatives.1  The  acceptance  of  a 
conveyance  of  real  estate  as  collateral  security  for  the  pay- 
ment of  a  judgment,  is  not  a  satisfaction.4  But  after  a  full 
settlement  between  the  parties  to  the  contract  of  pledge, 
and  release  of  all  claims,  where  the  collateral  security  was 
an  insurance  policy,  the  pledgor  will  have  no  claim  to  re- 
turn premiums  subsequently  paid  to  the  pledgee.6  No  pre- 
sumption arises  where  non-negotiable  certificates  of  deposits 
are  held  in  pledge,  that  such  paper  was  intended  as  pay- 
ment, in  the  absence  of  express  agreement,'  nor  where  there 
has  been  a  deposit  of  fire  insurance  policies  as  collateral 
security.  The  mere  receipt  of  them  is  not  a  payment.1  The 
pledgor  is  not  entitled  to  a  return  of  insurance  policies 
given  as  collateral  security  for  the  payment  of  a  bond  and 
mortgage,  where  a  release  of  the  mortgage  has  been  re- 
corded, so  long  as  the  bond  representing  the  debt  remains 
unpaid.  The  right  to  retain  such  collateral  securities  enures 
also  to  the  benefit  of  assignees  from  the  pledgee.* 

1  Storey  v.  Button,  46  Mich.  539.  •  West  v.  Carolina  Ins.  Co.  31  Ark. 

»  White  v.  British  Empire  Ins.  Co.  476. 

L.  R.  7  Eq.  874.  T  Scott  v.  Lifford,  Campb.  246. 

8  Haskins  v.  Kelly,  1  Robt.  160.  8Hollis  v.  Insurance  Co.  12  Phila. 

«  DC  Clery  v.  Jackson,  103  111.  658.  831. 
•  Merrifleld  v.  Baker,  11  Allen,  43. 


INDEX. 


ACCOMMODATION  INDORSEES.  PAGE 

the  contract  of  the  indorser  .  .  ,  ,  .    328 

subrogation  of  holders  to  collateral  securities  of       .  .          829 

upon  failure  of  the  maker  to  pay  ....    330 

or  transfer  to  holders,  upon  default     .  .  .  330 

no  subrogation,  where  payment  is  made  voluntarily       .  .    834 

pending  other  equities,  collateral  securities  released  by       .  831 

upon  payment  of  note,  subrogation  to  securities  by         .  .    832 

the  rule  applied  to  accommodation  acceptors  of  bills  of  exchange    332 
subrogation  as  to  securities  held  by  creditors  or  holder       .  832 

effect  of  receipt  by  creditor  of  collateral  security  .  .    271 

the  indorser,  as  charged  by  pledgee  of  collateral  notes  .         334 

the  pledgee's  notice  of  non-payment  to  pledgor  .  .  .     334 

iudorser  discharged,  where  collateral  notes  are  not  produced 

upon  demand  .  .  .  .  .  .        334 

liability  of  indorser  where  creditor  agrees  to  rely  upon  col- 
lateral security  ......       334 

when  securities  held  by,  may  be  returned  to  principal    .  .    335 

ACCOMMODATION  PAPER. 

the  use  of,  for  present  advances  as  collateral  security  .    42,  56 

the  pledgee  of,  for  present  advances  or  antecedent  debt,  a  holder 

for  value  .  ......      42 

the  rule  followed  in  New  York,  Ohio,  and  Pennsylvania     .      46,  48 
the  pledge  of,  in  case  of  misappropriation,  by  agents,  for  ante- 
cedent debt       .  .  .  .  .  .  .52 

the  use  of  blank  acceptances   .... 

obligation  of  makers  of,  as  affected  by  their  holding  collateral        43 
the  pledgee  of,  under  the  English  rule,  a  holder  for  value          .      49 
the  use  of,  as  collateral  security,  after  maturity  .  .    42,  54 

the  rule  in  New  York          .  .  .  .'."..  .41 

pledgee  of,  chargeable  with  notice  of  fraud  or  forgery          .         53 
where  pledged  by  a  partner  for  his  own  debts      ,  .  .53 

(See  ANTECEDENT  DKBT,  OVER-DUE  PAPER.) 

ADMINISTRATOR, 

pledges  of  securities  by,       .  .  .  .  .  .99 

ADVANCES,  FUTURE. 

the  pledgee  of  negotiable  collateral  securities,  a  holder  for  value      18 
and  also  of  certificates  of  stock,  indorsed,  for  .  .          385 

(605) 


606  INDEX. 

ADVANCES,  FUTURE— Continued.  PAGE 

the  pledge  in  case  of  misappropriation  .  .  .19 

pledges  of  bills  of  lading  for    .....  514 

pledges  of  certificates  of  stock  for  ....         401,  493 

and  also  sub-pledges  of  certificates  of  stock  for  .  .         430 

ADVANCES,  PRESENT. 

the  pledgee  of  negotiable  collateral  securities  for,  a  holder  for 

value  .......  16 

the  pledgee's  rights  as  against  payments  made  after  indorsement      18 
the  pledge  of  accommodation  paper  for  ...  44 

pledgee  of  bill  of  lading  for  present  advance,  a  holder  for  value 

as  against  unpaid  vendor       .....      545 

ANTECEDENT  DEBT. 

Negotiable  Collateral  Securities. 

the  pledgee  of  negotiable  collateral  securities  for,  a  holder  for 

value        ........      29 

and  of  documents  of  title,  bills  of  lading        .  .  .          513 

the  decisions  of  the  United  States  Supreme  Court          7          21,  24 
the  contra  State  rule  not  followed         ....  26 

the  New  Yoi-k  rule  as  to  pledge  of  negotiable  collateral  securi- 
ties for     .  .  .  .  .  .  .  .20 

the  rule  in  Missouri,  Ohio,  and  other  States    .  .  .32,  33 

the  rule  in  England  and  Canada — the  pledgee,  a  holder  for  value      26 
considerations     supporting     negotiable     collateral     securities 

for  .  .  .  .  v.  20,21,24,28 

transfer  of,  in  payment    .....  .37 

such  transfer  prima  facie  as  collateral  security       .  .  38 

the  rule  in  Massachusetts  and  Vermont  .  .40 

the  pledgee  of  accommodation  paper  for,  a  holder  for  value      45 
the  pledgee  for,  with  new  consideration,  a  holder  for  value       .      35 
or  a  relinquishment  of  other  security  ...  36 

or  upon  a  valid  extension  of  time  .  .  .  .86 

or  the  giving  of  some  new  consideration          .  .  .37,  365 

the  rule  where  the  pledgee  of,  for  antecedent  debt,  without 

more,  is  not  a  holder  for  value  .  .  .  .28 

the  New  York  rule  as  to  pledge  for     .  .  .  .  30 

the  rule  in  Missouri  .....  .32 

the  rule  in  Ohio,  and  other  States        ....  33 

the  pledgee  of  misappropriated  accommodation  paper  for,  not 

a  holder  for  value     .  ...     52,  96 

nor  where  chargeable  with  notice  of  fraud  upon  accommodated 

party  .  .  .  .  .  .  .    52,  53 

nor  where  received  as  collateral  security  for,  in  relation  to  dis- 
charge of  sureties       .  .  .  .  .        315 

right  of  creditors  to  sue  upon,  continued,  notwithstanding  re- 
ceipt of  ......  .    141 


INDEX.  607 

ANTECEDENT  DEBT—  Continued. 

Negotiable  Collateral  Securities.  PAGE 

prior  lien  not  discharged,  by  acceptance  of  .  .  142 

or  if  the  collateral  paper  is  dishonored.  .  .  .    142 

judgment  on  debt  enforced  .....  141 

action  on  debt  as  affected,  where  new  collateral  securities  are 

received  in  payment         .....        142. 143 

the  rule  applied  to  pre-existing  simple  contract  debts  .          143 

collateral   notes    dishonored    returned  to   pledger,    and   suit 

brought  upon  the         ......     143 

the  rule  in  England  to  like  effect         ....  143,  144 
Quasi-Negotiable  Collateral  Securities. 

the  pledgee  of  documents  of  title,  certificates  of  stock,  bills  of 
lading,  warehouse  receipts  and  cotton  press  notes,  for  ante- 
cedent debt,  is  a  holder  for  value  .  .  .  513,  559 

the  pledgee  of  stock  certificates,  with  legal  title,  in  England,  for, 

a  holder  for  value  ......     365 

the  sub-pledgee  of  stock  certificates,  for  an  antecedent  debt,  in 
Pennsylvania,  under  misappropriation,  not  a  holder  for 
value  ........  432 

and  in  case  of  misappropriation  of  stock,  without  more,  in  New 

York,  and  other  States  .  .  .  .  .421 

a  sub-pledgee  from  a  sub-pledgee  of  stocks,  under  like  circum- 
stances, not  a  holder  for  value  ....  429 

pledgee  of  bills  of  lading  for,  under  misappropriation,  not  a 

holder  for  value  .....         513,  514 

nor  the  pledgee  of  warehouse  receipts  for,  without  more          .      539 
AGENTS. 

misappropriation  of  negotiable  collateral  securities,  entrusted  to 

them        .......  94-95 

the  English  rule,  as  to  the  misappropriation  of  securities  by      96 

owner  estopped  as  against  innocent  persons  where  he  has  al- 
lowed agents  to  have  full  title  and  apparent  ownership  of 
bonds  and  mortgages  .  .  .  •  •  242 

the  rule  as  to  payments  to          ...  195 

or  where  presumptions  arise  that  the  acts  are  within  the  au- 
thority of          ....  .521 
ASSIGNMENT. 

where  necessary  in  cases  of  pledge  of  non-negotiable  choses  590-593 

(See  BONDS  AND  MORTGAGES,  DELIVERY.) 
BANKS  AND  BANKERS. 

effect  of  indorsement  to,  for  collection,  of  bills  and  notes         .        6 

transfer  of  notes  indorsed  for  collection,  to  a  bona  fide  holder 
for  value  ...  .... 

the  banker's  general  lien  on  securities  . 

his  hen  under  contract,  and  upon  special  advance  .  .      83 


COS  INDEX. 

BANKS  AND  BANKERS—  Continued.  PAGE 

his  lien  as  against  secret  equities  of  third  persons  .  .      84 

where  chargeable  with  notice,  and  seeking  to  enforce  a  general 

lien 84 

no  claim  allowed  upon  special  deposits  of  collateral  to  apply 

them  upon  a  general  account    .  .  .  .  .83 

the  banker's  liability  holding  securities  of  customer  .      84-85 

pledge  of  director  of  bank  of  negotiable  collateral  securities  to 

his  bank  .  .  .  .  .  .  .97 

loans  of  money  by  banking  corporations  as  against  borrowers 

retaining  the  same,  although  ultra  vires          .  .        231,  232 

pledge  by  a  banker  of  trust-stock  for  his  own  debt,  the  pledgee 

taking  but  an  equitable  title      ....          393-96 
the  loan  by  banking  companies  on  certificates  of  stock  issued 

by  other  corporations    .....        399-400 

the  pledge  as  voidable       ......      400 

and  where  not  chargeable  with  the  invalidity  of  a  stipulation 

in  the  contract  of  pledge          .....    401 

pledges  of  its  own  stock  to  a  banking  corporation    .  .         402 

pledges  of  its  own  stock  to  a  banking  company  for  future  ad- 
vances. .......         401 

National  Banks. 

the  right  of,  to  hold  collateral  securities  for  performance  of  con- 
tracts .......  85 

and  to  guarantee  undertakings  secured  by  such  deposits  .      85 

its  liability  on  account  of  theft  of  collateral,  as  against  suit  on 

principal  note  ......  85 

the  right  of,  to    enforce    mortgage    security  for  negotiable 

notes       ........      86 

or  where  given  for  antecedent  debt,  upon  new  notes,  or  where 

the  title  is  not  taken  directly  to  the  bank        .  .  86-87 

recovery  of,  on  negotiable  collateral  securities  given  for  usurious 

loans  .......         176 

the  provisions  of  the  National  Bank  Act  as  superseding  state 

enactments  as  to  usury .  .  .  .  176 

enforcement  of  mortgage  security  given,  with  negotiable  notes, 

as  collateral  security  for  loans  or  discounts  of  commercial 

paper.  .......  230-231 

or  certificates  of  stock  of  other  corporations  as  collateral  for 

loans  or  discounts  of  commercial  paper          .  .  .    401 

pledge  of  its  own  stock  to,  except  to  prevent  loss  on  a  debt  pre- 
viously contracted    ......        401-402 

where  such  contract  is  executed,  no  relief  given  the  pledger    402 
BILLS  OF  EXCHANGE 

(See  COLLATERAL  BILLS  AND  NOTES.) 


INDEX.  609 

BILLS  OF  LADING.  PAQB 

Description  of,  as  used  by  carriers  by  water  and  by  land  .    499 

the  bill  of  lading  as  quasi-negotiable,  when  in  the  hands  of  a 

bona  fide  pledgee,  or  other  holder  for  value        .  .         499 

the  pledgee  of,  for  value  advanced  in  good  faith,  and  without 

notice,  under  indorsement  and  delivery          .  .  .    500 

the  bill  of  lading,  in  Europe,  a  negotiable  instrument,  passing 

freed  from  equities  .....  501,  502 

where  provided  by  statute  that  bills  of  lading  shall  be  negoti- 
able "  in  the  same  sense  "  as  bills  of  exchange  and  promis- 
sory notes      .......          504 

where  transferable  "  in  the  same  manner "  as  bills  and  notes, 

negotiability  does  not  follow   .....    504 

the  bill  of  lading  indorsed  "without  recourse"  .  .     504 

the  bill,  a  symbol  of  the  property,  while  in  a  warehouse,  float- 
ing or  fixed   .......         505 

and  remains  in  force  until  delivery  to  some  person  authorized 

to  receive  .  .....    527 

what  is  a  good  delivery .  ...  .  .  .         527 

custom  as  controlling  delivery,  without  requiring  production  of    527 
or  where  delivery  is  made  to  an  officer  upon  a  writ          .        525,  528 
the  pledgee  holding  bills  of  lading  unindorsed,  as  against  fac- 
tors, creditors,  owners,  brokers,  or  agents      .  .  .    512 
and  as  against  the  unpaid  vendor's  lien         .           .            .  512 
the  pledge  of,  for  future  advances           ....    514 

and  of  a  reversionary  interest  in         ....  514 

Bills  of  lading  as  Collateral. 

the  pledgee  receiving,  with  or  without  indorsement,  upon  bona 
fide  loans  or  discounts  of  commercial  paper,  a  holder  for 
value       ........     506 

third  parties,  chargeable  with  notice  of  the  contents  of  the  bill.    507 
the  transfer  as  a  pledge  of  the  goods,  or  mortgage  of  them  and 

the  returns          .  .  .  .  .  .  .    508 

and  vests  a  general  or  special  ownership  in  the  pledgee  for 

value,    without    notice      .....  507 

Pledge  of  Sills  of  lading,  with  or  without  indorsement. 

the  pledge  of,  where  not  negotiable,  not  excluding  evidence  of 

parol  agreement,  nor  inquiry  into  original  transaction         .     508 
when  properly  transferred,  by  indorsement  as  well  as  delivery  .    508 
indorsement  necessary  in  England       ....  509 

transfer  by  delivery  of,  in  the  United  States,  sufficient  to  pass 

the  title  and  property       .....    510,  511 

even  where  drawn  to  "order"     .  .  .  .  .    611 

delivery  by  the  shipowner  or  wharfinger  upon  a  "  second "  bill 

unindorsed,  without  notice  .  »•          •  •  512 

39 


610  INDEX. 

BILLS  OF  LADING—  Continued. 

Bills  of  lading  under  Estoppel.  PAGE 

the  holder  of,  where  negotiable,  as  transferring  a  greater  interest 

than  he  himself  has  .....  532 

the  transfer  of,  where  quasi  negotiable,  under  indorsement  for 

value,  also  for  a  greater  interest  than  possessed        .  .    533 

the  innocent  pledgee  for  value  of,  as  unaffected  by  secret  agree- 
ments between  vendor  and  vendee        .  .  .       534,  535 
the  rules  of  equitable  estoppel,  as  applied  to  void  and  fraudulent    535 
and  as  against  a  land  carrier,  when  issued  upon  a  forged  receipt    535 
or  when   bill  is  held    by    innocent  persons  advancing  value    536 
or  upon  delivery  to  consignee,  the  bill  being  pledged  for  value, 

the  carrier  being  without  knowledge  .  .  .    443 

The  Bill  of  lading,  as  a  receipt. 

fraud  and  mistake  as  shown  in  the  bill,  a  receipt,  and  between 

the  parties          ......        523,  524 

the  carrier  as  estopped  as  to  matters  which  were  or  ought  to  be 
within  the  knowledge  of  the  officers  or  agents  issuing  such 

bills         . 524.  525 

the  rights  of  the  bona  fide  lender  of  money  upon  bills,  as  against 

creditors  ........    325 

defense  as  against   a  consignee  or  a  bona  fide  pledgee  for 

value,  wfthout  notice,  that  the  quantity  is  misstated         .    525 
the  pledgee's  action  against  the  carrier  for  non-delivery,  after 

demand  .  .....      526 

the  right  of  pledgee  of  first  indorsed  of  bills  to  bring  trover 
or  assumpsit  where  a  pledgee  of  another  of  the  set  has  ob- 
tained possession  and  sold  the  goods  .  .  .    531 
the  pledgee,  upon  notice  by  the  vendor,  holding  any  surplus 

for  his  benefit     ....  ...    539 

the  pledgee's  title  subject  to  terms  of  bills  while  goods  are  in 

transitu  .....  540,  541,  542 

(See  PLEDGEE'S  TITLE  AGAINST  CARRIER,  ESTOPPEL,  FORGERY, 
NOTICE  BY  PLEDGEE,  STOPPAGE  IN  TRANSITU,  BLANK   IN- 
DORSEMENTS.) 
BONDS  AND  COUPONS. 

delivery  merely,  when  payable  to  "  bearer  "  or  "  holder,"          .       8 
the  pledgee  of,  upon  advances,  a  holder  for  value     .  .  57 

no  title  acquired  by  pledgee  for  value  totally  void  .  .      59 

corporations  when  estppped  to  deny  recitals  upon    .  •  58 

or  by  paying  coupons  or  warrants  of  interest  on  .  .58 

or  by  subsequent  ratification     .  .  .  •  •  60 

•where  there  is  a  total  want  of  power         .  .  •  .59 

when  received  after  due  by  pledgee    ....  61 

presence  of  unpaid  coupons  upon  bond  without  effect  upon  its 

negotiability      ...  «...      61 


INDEX.  611 

BONDS  AND  COUPONS-  Continued.  PAOB 

severed  coupons,  payable  to  "bearer,"  negotiable      .  .  63 

the  pledgee  of  negotiable  bonds  when  required  to  re-deliver 

upon  payment  the  identical  bonds  received         .  .         134 

the  pledgee  when  required  to  retain  an  equal  number  of  like 

bonds,  pending  purchase  and  delivery  .  .  .    134 

the  pledgee  of,  for  value,  without  notice,  under  acts  of  misap- 
propriation in  pledge  by  agents     ....  96 

Bonds,  Registered. 

the  transfer  of,  upon  the  books  of  the  company,  required  to  vest 

in  the  transferee  the  legal  title  to  .  .  .60 

Bonds  and  Treasury  Notes  of  the  United  States. 

when  received  after  due,  as  collateral  security  .  .  61 

BONDS  AND  MORTGAGES. 

Bonds  and  mortgages,  the  subject  of  pledge         .  .  .    250 

pledge  of,  by  mere  delivery  of  the  document  .  .  .          251 

the  pledgee,  taking  a  special  property  to  the  amount  of  his  ad- 
vances .......         251 

such  collateral,  when  held  as  security  for  claims  of  other  per- 
sons than  the  pledgee          .....         251 

the  assignment  of,  as  collateral  security  for  sterling  bonds,  by  a 

separate  instrument ......         252 

the  title  of  assignee  of,  under  equitable  estoppel  .  .    237 

the  assignment  of  the  bond  carries  the  mortgage  security     .          184 
the  equities  to  which  the  assignee  is  subject  under  the  New  York 

rule     .  .238 

the  rule  in  New  Jersey       ......    240 

the  duties  of  the  assignee  as  to  the  mortgagor  .  .         240 

the  rule  applied  in  Pennsylvania,  and  also  in  Virginia     .       241,  242 
Assignment  of  Bonds  and  Mortgages  under  Estoppel. 

the  rules  of  equitable  estoppel  as  invoked  in  favor  of  innocent 

assignees  of  .....  242,  243 

where  an  agent  has  full  title  and  apparent  ownership  of       .         242 
equitable  limitations  of  estoppel,  as  applied  in  such  cases  .    243 

estoppel  of  cestuis  que  trust,  where  trustees  have  full  title  and 

apparent  ownership       ......    243 

estoppel,  by  certificate  of  "  no  defenses,  equities,  or  set-offs,"  of 

obligor  and  mortgagor  .....    244 

such  certificates  as  affected  by  fraud  or  misappropriation  in  the 

original  transaction  .....    244 

the  bond  and  mortgage,  under  indorsement,  quasi-negotiable  in 

character  .  .        245,  246 

the  enforcement  allowed  assignee,  where  mortgage  security  itself 

is  void  .....  •         246 

or  where  a  valid  bond  and  mortgage  is  given  as  collateral  for 

an  invalid  loan         ......         247 


612  INDEX. 

CHOSES  IN  ACTION.  PAOR 

the  use  of,  as  collateral  security      .....  568 

the  equities  to  which  the  pledgee  is  subject     .           .           .  569 
equitable  assignments  of  funds,  as  collateral  security       .        570,  571 

assignments  in  part  of  such  collateral  securities  in  equity      .  571 
the  pledge  of  non  -  negotiable  instruments,   with  or  without 

indorsement              ......  573 

the  assignment  in  pledge  of  insurance  policies      .           .           .  575 

the  pledgee's  lien  upon  payment  of  premiums             .            .  576 

pledge  of  non  -  negotiable  collateral,  without  notice  to  debtor  577 

priority  of  assignees  of  funds,  upon  giving  rule          .            .  578 

the  debtor's  liability,  with  notice  of  assignment               .            .  579 

the  title  acquired  by  pledgees,  with  notice  of  fraud    .           .  580 
COLLATERAL  SECURITY. 

definition  of              .             ......  2 

definition  of  the  term  "  collateral "      ....  2 

primary  purpose  of  .  .  .  .  .115 

recital  of,  in  principal  note        .           .           .           .       *~  •  3 

renewals  of  principal  note     .  .  .  .  .14 

exchange  or  substitution  of  collateral  notes     ...  15 

the  rule  as  applied  to  negotiable  notes,  secured  by  mortgage       .  214 

security  follows  debt  in  equity,  a          ....  107 

documents  of  title,  under  indorsement  and  delivery,  as    .        341,  342 

the  use  of  stock  certificates  of  stock,  as            ...  391 

the  use  of  bills  of  lading,  as             .....  495 

the  use  of  warehouse  and  cotton-press  receipts,  as                 .  555 
the  use  of  non-negotiable  choses  in  action,  and  equitable  assign- 
ments of  funds,  as    .            .            .            .            .            .  568 

COLLATERAL,  CONTRIBUTION  BY  SURETIES  WITH. 

contribution,  as  to  collateral  securities  by  surety           .           .  298 
whether  obtained  before  or  subsequently        .            .            .  301,  302 

surety  with  collateral  as  a  trustee  for  co-sureties             .           .  299 
no  revocation  of   deposit  of   collaterals  after  negotiation  of 

note       ........  300 

estoppel  of  surety  by  conduct  or  by  surrender  of  such  collateral  300 

payment,  necessary  to  entitle  surety  to                  .           .        800,  301 

surety  entitled  to,  although  holding  collateral  securities           .  300 

the  rule  where  securities  are  more  than  debts           .           .  301 

the  surety's  stipulation  for  separate  indemnity     .           .           .  803 

the  right  to  as  waived  or  surrendered  by  contract      .           .  303 
surety  entitled  to,  upon  paying  more  than  his  aliquot  portion  of 

debt                                                    ,.  304 

the  surety's  action  at  law  for,  dependent  upon  payment  of  debt  306 

can  only  recover  aliquot  part  of  debt        ....  806 

(See  SURETY.) 


INDEX.  61E 

COLLATERAL  BILLS  AND  NOTES. 

The  Pledgee's  enforcement.  PAGE 

the  pledgee's  right  of  determining  manner  and  time  .  116 
the  pledgee  as  a  trustee  of  collateral  securities  .  .  .117 

of  collateral  bills  aud  notes,  under  special  agreement           .  110 

or  where  contract  is  to  return,  or  pay  their  value  at  maturity    .  110 

pledgee's  obligation  to  present  and  give  notice  of  non-payment  118 

his  liability,  in  cases  of  failure  .  .  .  .  118 
the  rules  of  notice  to  pledgor  enforced  where  not  a  party 

to 118,119,120 

limitations  of  notice,  by  pledgee  of  accommodation  paper         .  119 

the  pledgee's  obligation  to  collect  collateral  paper  .  .  120 
enforcement  by  pledgee,  under  statutory  enactment,  although 

unindorsed     .......  121 

or  where  collateral  notes  are  indorsed  in  blank  or  payable  to 

bearer            .           .           .            .            .           .           .  131 

the  pledgee's  recovery  of  collateral  paper  .  .  .        121, 122 

upon  deficiency,  suit  upon  principal  note        .           .  122 

collection  of  "  short "  collateral  paper       ....  124 

of  paper  held  by  the  pledgee,  uncollectible      .           .           .  125 

pledge  of  such  paper  implies  right  to  compromise           .           .  125 

pledgee  sale  of  past-due  paper  where  uncollectible     .           .  126 
Production  and  return  of  Collateral  paper. 

the  pledger  when  entitled  to  return  of                   .           .           .  134 

but  not  on  a  mere  offer  to  pay           ....  134 

pledgee  should  produce  collateral  bills  and  notes  on  action  on 

principal  obligation                   .....  138 

the  like  rule  as  to  bills  of  exchange     ....  139 

return  of  collateral  paper    ......  141 

nor  is  the  pledgor  entitled  to  return  of  collateral  paper  upon 

payment  of  part  of   debt  merely           .           .           .  149 
Application  of  Collateral  paper. 

the  pledgee  when  entitled  to  apply  collateral  to  other  debts      .  129 

the  rule  applied  to  stock  and  insurance  policies  454,  455,  595,  596 
application  of  securities  to  other  debts  by  contract  .  .  129,  130 

the  rule  as  applied  to  individual  partner's  securities        .           .  81 

and  as  to  collateral  securities  deposited  with  banks  .  84 
stock  and  other  brokers  within  the  like  rule  .  .  .84 
sub-pledgees  of  collateral  stocks  favoring  stocks  of  one  at  the 

expense  of  others           ......  434 

equitable  relief  of  the  pledger,  whose  stocks  have  been  sold  434 

rights  of  customer  under  sub-pledge  of   stocks           .           .  435 
(See  EQUITABLE  JURISDICTION.) 
Compromise  or  surrender. 

pledgee's  compromise  or  surrender  for  less  than  its  face       .  123 

although  with  power  of  sale  under  contract        .           .           .  128 


614  INDEX. 

COLLATERAL  BILLS  AND  NOTES—  Continued. 

Compromise  or  surrender.  PAGE 

compromise  as  made  by  agreement  of  parties .  .  .         128 

when  surrendered  without  consent  ....     128 

CONCURRENT  REMEDIES. 

pledgee's  right  to  proceed  upon  principal  and  collateral  notes  at 

the  same  time     .......    146 

but  with  only  one  satisfaction    .....          146 

the  pledgee's  recovery  of  costs        .....    146 

indorsee  of  note  and  mortgage,  may  proceed,  upon  default,  on 

both .  .198 

trustee's  sale  where  suit  on  note  is  pending     .  .  .         198 

costs  in  action  at  law  part  of  mortgage  debt         .  .  .    199 

remedies  of  indorsee  as  controlled  by  statutory  enactments        .     199 
judgment  on  principal  note  as  affecting  mortgage  security  198 

CORPORATIONS. 

recovery  of  money  loaned  without  authority  .    86.  231,  232,  263 

the  forfeiture  of  franchises,  at  the  instance  of  government  86,  233,  234 
corporations  issuing    their  own   unsubscribed   and     unissued 

shares  of  stock  as  collateral  for  advances  made  or  to  be 

made        ........    401 

when  a  pledge  of  stock  for  future  debt,  not  defeated  .         400 

Corporations,  under  Estoppel. 

estoppel  as  against  corporations,  founded  on  agency        412,  414,  417 
responsible  to  same  extent,  and  under  like  circumstances,  as 

individuals          .......    413 

estoppel  as  applied  in  favor  of  a  pledgee  of  stock  certificates 

against  a  corporation  by  the  acts  of  its  officers          .         414,  415 
estopped  as  to  recitals  of  bonds  when  in  the  hands  of  inno- 
cent holders,  pledgees  for  value          .  .  .  .58 
or  by  payment  of  interest           .....  58 
or  by  subsequent    ratification,    where    originally   irregularly 

issued  .......  60 

estopped  as  to  its  representations  upon  its  certificates,  as  against 

innocent  pledgees  for  value,  with  authority  to  transfer       .    359 
corporations  estopped  as  to  liability  as  stockholder  where  it 

has  received  stock  and  received  dividends  as  collateral  and 

transferred  the  same  .....          400 

or  to  set  up  defense  of  ultra  vires,  as  against  innocent  holder  of 

note        ........    401 

DELIVERY  IN  PLEDGE. 
Negotiable  Instruments. 

of  negotiable  instruments,  payable  to  bearer,  or  indorsed  in 

blank  .....'.  8 

or  in  case  of  negotiable  bonds  and  coupons          .       8,  11,  57,  61,  62 
or  under  the  Louisiana  code      .....  7 


INDEX.  615 

DELIVERY  IN  PLEDGE. 

Negotiable  Instruments.  PAGE 

or  to  third  parties,  under  contract  of  pledge         .  .  .10 

essential  to  a  valid  use  of  negotiable  instruments  as  collateral  9 

pledge  of  bills  of  exchange  dishonored,  as  against  mortgage 

covering  the  bills     .....  126 

pledgee's  right  to  sue  unindorsed  paper,  under  statutory  enact- 
ment .  .  .  .  .          »    '      .          121 

recovery  of  pledgee  under  unindorsed  bills          .  .  .    123 

pledgee  of  uniudorsed  note,  secured  by  mortgage       .  .          191 

and  where  assigned  by  a  separate  instrument .  .  .          192 

no  recovery  on  unindorsed  paper  in  cases  of  fraud  or  misappro- 
priation       .......          192 

pledge  of  negotiable  notes,  secured  by  mortgage,  by       225,  226,  228 
pledgee  of  unindorsed  notes,  as  subject  to  subsequent  indorse- 
ment to  another  pledgee        .  !  ...          22 
Bonds  and  Mortgages. 

delivery  and  assignment  necessary  to  validity  of  bond  without 

consideration  .  .....          245 

intervening  lienors  before  assignment  and  delivery         .  .    245 

Certificates  of  Stock. 

assignment  and  delivery  in  pledge  of  certificates  of  stock     .  361,  381 
executory  contracts  for  pledges  of  stocks,  as  against  third  per- 
sons, cestuis  que  trust         ....  361,  362 

or  in  cases  of  misappropriation  by  trustees  .  .  .    362 

or  to  the  injury  of  subsequent  pledgees,  without  notice        .          361 
equity  will,  in  proper  cases,  aid  the  pledgee  by  requiring  indorse- 
ment         (See  INSURAXCE  POLICIES.)    .  .  .          361 
DIRECTORS  OF  CORPORATIONS. 

the  pledge  of  bonds  and  other  securities  to  themselves  .  .      99 

the  pledge  when  made  for  liabilities  incurred  or  money  ad- 
vanced .......    100 

when  liable  as  sureties  for  loan  of  money  to  corporations          .    263 
DISCHARGE  OF  PLEDGOR. 

discharge  of,  on  principal  obligation  upon  payment  to  holder  of 

collateral  paper  .....        102,  599 

discharge  by  gross  neglect  or  bad  faith  of  pledgee      .  147,  148 

no  discharge  by  reason  of  mere  passive  delay  of  pledgee  .     149 

pledger's  enforcement  of  collateral  paper        .  . 

where  surrendered  for  less  than  face          .  . 

the  pledgee  when    chargeable  with  face  value  of  collateral 

paper     ...•••••      107 

and  in  case  of  tortious  sale 

pledger  when  entitled  to  have  collections  on  collateral  notes 

applied  to  debt   ...••••    120 


616  INDEX. 

DISCHARGE  OF  PLEDGOR— Continued  PAGB 

and  to  return  of  collateral  securities  on  payment  of  principal 

debt          .       .    .  .  f •••       .       •    * -..         .  .    134 

discharge  of  pledgee  of  choses  in  action         .  .  .  604 

a  pledger's  right  to  return  premiums  on  insurance  policies 

paid  to  pledgee,  after  settlement    .  .  .  .         604 

ESTOPPEL,  AS  APPLIED  TO  COLLATERAL  SECURITIES. 

recognized  propositions  of  an  estoppel  in  pais  .       582,  585,  586 

essential  elements  of  equitable  estoppel      .  .        ':*'  584 

As  against  Corporations. 

to  deny  recitals  of  its  negotiable  bonds  and  coupons,  as  against 

innocent  holders  for  value       .  .  .  .  .58 

or  by  payment  of  interest         ..  .  .  .  .  58 

or  by  ratification  where  originally  irregularly  issued        .  .      60 

the  same  rules  applied  to  recitals  in  non-negotiable  choses  iu 

action     .  ,  .  .  .  .  .  .    494 

by  representations  on  face  of  certificates  of  stock        .  359,  360 

nor  that  shares  have  been  issued  on  separate  assignment  ^  .  360 
as  against  innocent  holders  of  new  certificates,  issued  upon 

forged  transfers  .  .  .  .  .     408 

as  against  pledgees  for  value  of  fictitious  and  other  stocks  issued 

by  agents  .......    411 

as  against  innocent  pledgees,  where  choses  in  action  are  exe- 
cuted expressly  for  the  purpose  of  raising  money     .  63,  189,  533 
As  against  Owner. 

where  third  person  holds  bill  of  lading  with  full  title      .  .     535 

of  notes  and  mortgages  by  payments  to  agents  with  authority  195 
as  against  indorsees  of  such  notes,  until  authority  revoked  .  195 
also  as  to  payments  made  to  trustees,  before  notice  .  195,  196 
as  against  pledgee  of  notes  and  mortgages,  where  title  is  in 

third  person  .  .  .  .  .  .190 

or  where  sub-pledged  by  pledgee  with  title  for  a  larger  sum  than 

original  loan       .......    233 

or  where  documents  of  title,  and  apparent  absolute  ownership, 

are  entrusted  to  a  third  person  and  a  fraud  or  deceit  results  587,  590 
as    against    sub-pledgee    of   negotiable    instruments    held    by 

pledgee  with  title  and  apparent  ownership  .  109,  110 

As  against  Cestuis  que  trust. 

as  against  misappropriations  of  securities  by  trustee  in  pledge    399 
As  against  Pledgee. 

where  pledgor  allowed  to  appear  as  owner  .  .  .     559 

or  where  title  to  securities  are  in  third  person        ,      .  .         190 

Other  canes  of  Estoppel. 

a  creditor  estopped  to  enforce  liability  of  surety,  by  fraudulent 

representations  as  to  collateral  securities       .  .  .    817 


INDEX.  617 

ESTOPPEL,  AS  APPLIED  TO  COLLATERAL  SECURITIES—  t'ontd. 
Other  cases  "of  Estoppel.  PAOB 

as  against  sureties,  in  favor  of  indorsees,  without  notice,  where 

name  of  a  surety  is  forged        .....    320 

as  against  shipowner  or  land  carrier,  to  set  up  non-delivery  of 
goods,  or  fraud,  or  forgery,  as  against  innocent  pledgees 
for  value  .....  520,  521,  522,  523 

or  by  acts  of  agent  within  his  apparent  authority  .  .     521 

estoppel  of  mortgagor  by  representations  that  the  money  loaned 

for  which  the  mortgage  was  given,  was  paid  in  full  .    194 

or  by  certificates  of  "no  defenses,  equities,  or  set  offs  "    175, 176,  587 

or  by  his  wilful  silence  or  neglect  ....     204 

or  when  executed  for  the  purpose  of  raising  money  65,  189,  221,  583 

estoppel  of  warehouseman  by  terms  of  his  receipts,  as  against 

bona  fide  pledgees  for  value    .....    560 

and  in  cases  where  no  goods  have  been  delivered       .  .  560 

and  as  against  an  innocent  pledgee  for  value  of  receipts  .    560 

Limitations  of  Estoppel. 

estoppel  as  against  owner  where  negotiable  coupons  pledged 

fraudulently,  after  maturity      .  .  .  .  .64 

or  where  a  pledgee  of  notes  from  an  administrator,  is  chargeable 

with  knowledge  of  fraud          .  .  .  ,  .99 

or  where  forgery  and  felony  by  a  broker  of  certificates  were 

necessary  to  carry  out  a  fraud  and  deceit       .  .  .    420 

or  as  against  a  shipowner  or  inland  carrier  to  set  up  non-de- 
livery of  goods  ......  516 

as  to  apparent  authority  of  agents  to  issue  bills  of  lading  abso- 
lutely void  ......  516-520 

cases  where  estoppel  not  enforced  against  pledgee  of  bills  of 

lading 537,538,540 

nor,  as  against  indorsees  of  mortgage  notes, 

nor,  as  against  corporations,  upon  a  total  want  of  authority 

(See  FICTITIOUS  AND  STOLEN  SECURITIES.) 

EQUITY  JURISDICTION  OVER  COLLATERAL  SECURITIES. 
The  Pledgee's  relief  in  Equity. 

to  obtain  a  judicial  sale  of  negotiable  collateral  securities       154,  If 

and  in  the  case  of  long-time  bonds 

or  a  foreclosure  and  sale  of  such  negotiable  collateral  paper 

or  a  foreclosure  and  sale  of  mortgage  security  given  to  secure 
payment  of  long-time  bonds 

or  in  preserving  his  security  from  improper  diversions      . 

or,  holding  notes  and  mortgages,  upon  default    .  .        235,  2? 

or  entry  and  possession,  as  any  mortgagee 

the  pledgee's  rights  until  sale,  or  possession  of  land  twenty  years 

or  where  pledgee  has  surrendered  valid  notes  receiving  new 
securities  which  are  void  •  • 


618  INDEX. 

EQUITY  JURISDICTION  OVER  COLLATERAL  SECURITIES—  Con. 
The  Pledgee's  relief  in  Equity.  PAGE 

the  pledgee's  rights  under  contracts  by  which  collateral  secur- 
ities are  forfeited      .  .  ....  .          108 

or  securities  given  upon  an  illegal  agreement       .  .  .    247 

or  where  reliance  is  placed  upon  an  illegal  contract  .  94 

or  where  parties  to  the  contract  have  a  complete  remedy  at  law    155 
or  where  a  company  refuses  to  transfer  stock       •  355,  409,  410 

or  where  the  pledge  of   stock  is  made  unindorsed  but  with 

agreement  for  indorsement       .....    361 

or  in  aid  of  a  pledgee  of  insurance  policies  .  .  .    600,  601 

The  Pledgor's  Relief  in  Equity. 

the  pledgor  of,  where  they  have  been  wrongfully  transferred         107 
or  where  tortious  sales  have  been  made  by  pledgees  .  234 

or  where  the  negotiable  securities  have  been  separated  from  the 

mortgage       .......          199 

or  where  tender  of  debt  is  made,  after  foreclosure  of  security        134 
or  will  grant  an  injunction  against  a  pledgee,  where  holding 

bonds  largely  in  excess  of  the  debt     ....    156 

or  to  redeem  his  negotiable  securities  .  .  .          168 

or  redemption  where  pledged  for  a  specific  debt .  .  .    170 

or  where  no  time  is  set  for  payment  of  the  loan         .  .          169 

the  pledger's  right  to,  when  lost  by  laches  .  .  .    169 

or  where  the  securities  have  increased  greatly  in  value         .          170 
or  where  nothing  has  been  realized  upon  collaterals        .  .     170 

equitable  relief  where  pledgee  has  obtained  new  certificates  of 

stock 376,  452,  453 

the  transfer  as  collateral  security,  as  established  by  parol  evi- 
dence   372,373,376,377 

the  cases  in  which  a  decree  is  given  for  a  return  of,  the  specific 

shares  of  stock  .....        452, 453 

the  pledger's  relief  where  a  pledgee  has  sold  securities  to  him- 
self, or  through  an  agent         .  ....    453 

or  where  stocks  held  as.  collateral  security  are  lost  by  gross 

negligence         ...  ....    453 

or  where  collateral  stocks  pledged  for  a  specific  loan  are  re- 
tained for  other  liabilities        ....        454,  455 

or  where  a  tender  has  been  made  of  the  debt  for  which  the 

stock  was  authorized  to  be  placed      ....    454 

the  pledger's  relief  by  the  application  of  securities  held  from 

different  pledgers  by  sub-pledgees  .  .  .    453,  454 

the  pledgee's  set-off  in  cases  of  an  unauthorized  sale  .          455 

the  redemption  of  stocks,  when  made  by  receivers  of  insolvent 

stockbrokers  ......          456 

the  pledger's  redemption,  where  stocks  are  in  the  hands  of 
receivers         .......         456 


INDEX.  619 

EQUITY  JURISDICTION  OVER  COLLATERAL  SECURITIES-tfon. 
The  Pledger's  relief  in  Equity.  PAGE 

the  pledger's  right  by  injunction  to  restrain  trustee  from  voting 

stock  held  as  collateral       .....          372 

the  pledger's  right  to  redeem,  when  lost  by  laches          .        456,  457 
the  rule  in  Louisiana     ......          457 

EXCHANGES.    (See  OPTION  DEALS,  USAGES,  BROKERS'  SUITS.) 
EXECUTORS. 

their  right  to  use  negotiable  securities  of  the  estate  as  collateral  98 
or  to  pledge  stocks,  or  other  securities  of  the  estate  •  897 

the  knowledge  of  pledgee  sufficient  to  defeat  his  title  .    397 

pledges  of  securities  of  estate,  after  settlement  for  over  twenty 

years        ........    396 

pledges  of,  of  stocks  of  the  estate  for  their  own  debts         .          398 
the  title  of  pledgee,  when  chargeable  with  notice  of  fraud         98,  398 
and  of  sub-pledgees  of  stocks,  so  pledged       ...          399 
the  return  of  securities  to  the  estate  ....    399 

THE  FACTOR  AS  PLEDGOR. 

his  rights  at  common  law,  to  pledge  and  assign  his  lien  .    547 

character  and  extent  of  the  factor's  lien  .  .  .          548 

factor's  lien,  as  affecting  the  ownership  of  goods  .  .    549 

when  equity,  will  enforce  lien  in  favor  -of  holders  of  notes  as 

agaiiist  factor  .....        549,  550 

factor  making  advances,  a  pledgee  ....  550 
his  lien  as  affected  by  a  wrongful  sale  or  pledge  .  .  550 

when  entitled  to  set-off  lien  against  action  for  wrongful  sale  550 
when,  in  an  action  of  trover,  tender  of  advances  and  charges 

are  required        .......    551 

pledgees  of  property,  or  documents  of  property,  from  factors, 

when  chargeable  with  notice    .....    552 
indorsement  and  delivery  of  documents  of  title  when  made  at 

the  time  of  .  .  .  .  .  .553 

where  pledgee  holds  other  securities,  his  primary  resort  as  con- 
trolled by  courts  .  .  .  .  .  ,    553 

FICTITIOUS  AND  STOLEN  SECURITIES. 

title  of  the  innocent  pledgee  for  value  of  fictitious  bills  of  lading  539 
liability  of  sureties,  upon  notes  void,  although  holding  collateral  263 
title  of  innocent  pledgee  for  value  of  fictitious  certificates  of 

stock  fraudulently  issued  by  officers  of  a  company  411,  417 

the  rule  as  limited  by  confining  it  to   the  governing  officers  of 

a  company          ......        411,  412 

title  of  the  innocent  pledgee  for  value,  as  supported  upon  rules 

of  equitable  estoppel  .....    412 

title  of  innocent  pledgee  of  a  new  certificate  of  stock  issued  in 

the  place  of  one  stolen  from  the  true  owner,  as  against  the 

latter       •        • •  .410 


620  INDEX. 

FICTITIOUS  AND  STOLEN  SECURITIES— Continued.  PAGE 

or  where  a  certificate  in  the  name  of  a  third  party  was  stolen 
and  negotiated  by  him  as  having  the  legal  title,  as  against 

the  real  owner               ......  411 

FORGERY. 

Negotiable  Collateral  Securities. 

pledge  of  accommodation  paper,  tainted  with      .  .  .53 

pledge  of,  directly  affected  with           .                       ,           .  91 

the  enforcement  of  collateral  paper,  where  free  from      .           .  92 

surety's  liability,  where  signatures  of  other  sureties  forged  263 

revival  of  original  debt,  where  new  security  a                  .           .  319 

pledgee's  title  to  mortgages,  where  notes  are  void      .           .  189 
Quasi-Negotiable  Collateral  Securities. 

claims  of  pledgees,  under  certificates  of  stock,  tainted  with    407,  408 
and  under  new  certificate  where  it  remains  in  possession  of  the 

transferee       -    .           .           .           .           .           .           .  407 

or  in  the  hands  of  a  bare  trustee,  the  principal  debt  being  paid  408 

title  of  the  holder  for  value  of  new  certificate,  without  notice    .  408 

or  of  bona  fide  pledgees  for  value,  without  notice           .           .  408 

rights  of  the  owner  of  shares  of  stock,  by                  .           .  408 
and  under  the  issue  of  new  certificates     .           .           .         409,  410 

title  of  innocent  holder  for  value  of  new  certificate         .           .  351 

estoppel,  as  applied  to  stock  certificates,  tainted  with             .  411 

liabilities  of  pledgees,  indorsing  certificates,  tainted  with           .  411 

as  against  carriers,  issuing  bills  of  lading  on  forged  receipts  536 

FORMS  AND  CONTRACTS. 

recital  of  collateral  in  principal  note        .            .            .            .  '     4 

form  of  notice  of  public  sale  of  collateral     .           *           .  153 

power  of  sale  of    collateral,  in  principal  note         .           .  153 

"  seller's  option  "  contract               .....  472 

"  put "  contract,  for  differences            ....  473 

.  a  restrictive  indorsement  on  a  bill  of  lading          .           .           .  542 

GUARANTY. 

contract  of  the  guarantor    .            .           •           .           .            .  329 

law  and  rules  of  continuing  guaranties           .            .           .  336 

rules  as  to  notice  of  acceptance  of  guaranties       .           .           .  837 
when  relieved  of  equities,  in  hands  of  holder  for  value,  without 

notice      ........  338 

guarantor's  liability     fixed,    upon  default  of  principal        .  338 

rule  where  guaranty  is  of  collection  merely          .           ,           .  839 

or  where  principal  maker  is  openly  insolvent            •        .  .  339 

or  where  guarantor's  liability  is  to  pay  the  note         "  •           .  839 

discharge  of,  as  affected  by  receipt  of  security  by  holder      .  339 

holder's  duty  to  resort  to  collateral  securities  before  suit           .  840 

subrogation  of  guarantors,  upon  payment  of  debt    .            .  340 

rule  where  guaranty  is  for  collection  only             .           .            .  340 


INDEX.  621 

GUARANTY—  Continued.  PAGB 

right  of  guarantors,  upon  payment,  to  sue  acceptor  for  full 

amount  of  bills  .....  122 

of  negotiable  bonds,  payable  to  bearer,  free  of  equities  .      61 

its   enforcement  by  pledgee,  where  given  by  third  party  to 

pledger  of  collateral  notes         .....    121 

HOLDER  FOR  VALUE. 

Negotiable  Collateral  Securities. 

pledgee  of,  for  present  advances,  a  -.»*..      16 

pledgee  of,  for  future  advances,  a        ...  .  .  18 

pledgee  of  for  antecedent  debts,  without  further  consideration,  a      20 
pledgee  of,  for  antecedent  debt,  with  new  consideration,  a         .      35 
pledgee  of  accommodation  paper,  for  present  and  future  ad- 
vances, and  for  antecedent  debt,  a  .  .  31,  42 
pledgee  of  accommodation  paper,  in  England,  a           .           .49 
pledgee  of  negotiable  bonds  and  coupons,  upon  a  valuable  con- 
sideration, a                    .           .            .           .            .           .58 

pledgee  of,  receiving  collateral  paper   in  good  faith,  without 

notice,  under  acts  of  misappropriation,  a       .  .  .87 

sub -pledgee  of,  for  value,  without  notice,  a          ...    108 
sub-pledgee  from  a  sub-pledgee  for  value,  without  notice,  a    109 
pledgee  of  stock  certificates,  indorsed,  upon  advances,  a         350,  367 
pledgee  of  bills  of  lading,  upon  bona  fide  loans  or  discounts, 

as  against  an  unpaid  vendor,  a  .  .  .  .     545 

INDORSEMENT. 

pledge  of  negotiable  bills  or  notes,  by        .  .  .  .5 

use  of  bills  and  no:es  as  collateral  security,  unindorsed  for  col- 
lection,  or  for  special  purpose  only  .  6 
pledger  protected  from  misappropriation,  by  restrictive  indorse- 
ment       ........      91 

transfer  by,  of  notes  and  mortgages  as  collateral  upon  separate 

instrument          .......    214 

the  pledge  of  notes  indorsed  "without  recourse"  .  .    225 

bonds   and    mortgages,   quasi-negotiable   under   indorsement, 

"  payable  to  bearer "  .....    261 

assignment  and  delivery  to  validate  transfer  of  bond  and  mort- 
gage, executed  without  consideration  .  .  .    245 
ENDORSEMENTS  IN  BLANK. 
Negotiable  Collateral  Securities. 

use  of  bills  and  notes  as  collateral  security  indorsed  in  blank       8 
misappropriation  in  pledge,  under  such  indorsement       .  .    227 

Quasi-negotiable  Collateral  Securities. 

transfer  of  stock  certificates  as  collateral,  under 
title  of  pledgee  of  stock  certificates,  under         346,  347,  352,  353,  354 
title  vesting  in  the  pledgee  for  value,  under         .  .  .    353 

title  of  innocent  holder  for  value,  under         .  .  •          451 


622  INDEX. 

INDORSEMENTS  IN  BLANK- Continued.  PAOB 

Quasi-Negotiable  Collateral  Securities. 

such  certificates  of  stock  pass  from  "  hand  to  hand  **      .  .    847 

and  its  benefits  enure  to  sub-pledgees  for  value         •  .          349 

the  transfers  of  shares  in  England,  under  .  .       348,  349 

liabilities  of  persons  indorsing  in  blank  certificates  of  stock, 

tainted  with  forgery       ....  375,  376,  411 

limitations  of  the  rule,  where  equitable  title  only  passes  to 

pledgee  .  .  .  .  .  .  .355 

indorsements  in  blank,  filled  up  after  pledger's  death         ...          387 
owners  of  stock  estopped,  by  delivery  of  certificates  of  stock, 

under  .        •  »  .  .  .  .  .        ,          417 

presumptions  which  arise  in  favor  of  holders  of  certificates  of 

stock,  under  .  .        %  ,  .  .  417,  418 

owner  estopped  as  against  innocent  pledgees  for  value,  without 
notice,  by  acts  of  fraud,  under       ....          417 

indorsement  of  bills  of  lading  to  pledgee  for  value,  without 
notice  under         .  .  .  .  .  .^        .    509 

INDORSEE. 

(See  ACCOMMODATION  INDORSES.) 
INSOLVENCY. 

(See  RECOVERY,  SALE,  AND  STOCK  AS  COLLATERAL.) 
INSURANCE  POLICIES. 

assignment  of,  as  collateral  security      .  .  .       .    574,  575 

pledgee's  lien,  upon  payment  of  premiums  .  .  .    576 

payment  of  premiums,  by  pledgee,  where  assigned  fraudulently    576 
payment  by  strangers  or  part  owners        ....    577 

pledgee  entitled  to  return  premiums,  after  settlement  .          604 

rights  of  a  pledgee  of,  by  indorsement  and  delivery,  as  against 

a  prior  pledgee,  without  delivery  .  .  .          578 

application  of,  to  debts  other  than  those  specifically  covered  by 

the  pledge  ......        595, 596 

equitable  relief,  when  given  to  pledgee  of       .  .  600,  601 

INVALID  LOANS. 

as  defense  to  surety,  that  corporation  loaning  money  had  no 

authority  so  to  do  .  .  .  .  .          263 

the  guaranty  of  contracts  entirely  void     .          ..  .  .    337 

guaranties  of  coupons  when  en  forcible,  where  the  bonds  are 

voidable  only     .......    838 

usurious  interest  paid  upon  loans,  as  affecting  guarantors  338 

"LIS  PENDENS." 

as  applied  to  the  transfer  of  stock  certificates  •  •          352 

LOUISIANA. 

rule  under  the  code  as  to  prescription  against  negotiable  collat- 
eral paper        .  .....          133 

title  of  notes,  secured  by  mortgage,  how  passed  .  •    225 


INDEX.  623 

LOUISIANA— Continued.  PAQE 
shares  of  stock  pledged  by  contract  and  delivery  of  certifi- 
cates        '.        861,  362 

pledgee  of  stocks,  subject  to  liens  and  privileges  .  362,  882 

possession  of  certificates  when  held  by  a  trustee       .  .          362 

a  pledge  of  shares  by  delivery  ...  381 

MANDAMUS. 

pledgee's  right  to,  upon  refusal  of  company  to  transfer  stock   353,  396 
MARRIED  WOMEN. 

when  entitled  as  surety,  that  creditor  shall  first  exhaust  princi-      • 
pal's  property          ......          266 

her  own  contract  void,  when  surety  bound  .  .  .    267 

pledges  of  stock  certificates  by  .  .  .  •         403 

MARSHALLING  SECURITIES. 

principle,  as  applied  to  pledges  of  negotiable  collateral  paper        130 
and  to  brokers  pledging  customers'  notes  en  masse    .  .          131 

like  rules  applied  to  sub-pledgees  of  negotiable  securities       130,  131 
limitations  of  the  rule,  as  applied  to  such  securities        .  .    130 

MEASURE  OF  DAMAGES. 
For  wrongful  sale  by  Stockbrokers. 

general  rule  as  to  .  .  .  .  .  .         447 

in  cases  of  a  tortious  sale  of  collateral  mining  stock       .  .    447 

or  where  stocks  obtained  fraudulently  are  sold  to  purchasers 

with  notice         .......    447 

rule  as  to  such  sales  made  by  brokers  in  New  York  .          448 

rule  in  Pennsylvania  ......     448 

pledger,  when  entitled  to  an  action  of  trover  for,  without  a 

tender  of  the  price          ....  .    451 

demand  of  payment  and  tender  of  stocks,  when  required  by 

broker  before  suing  customer  .  .  ...    451 

Other  rules  as  to  Measure  of  damages. 

of  the  owner  of  stock,  transferred  upon  forged  indorsement          422 
or  where  new  certificates  of  stock  have  been  issued  408 

and  as  against  the  fraudulent  person  and  the  company  409,  410 

of  pledgee,  upon  indorsement  of  certificate  by  prior  pledgee,  in 

a  case  of  forgery  ......    422 

and  upon  a  wrongful  pledge  of  certificates  by  a  stockbroker 

signing  as  "  trustee  "  .....    395 

of  pledges  of  spurious  stock 

of  pledgee,  where  company  refused  to  transfer  stock  as  being 

subject  to  a  "  lis  pendens  " 

of  a  sub-pledgee,  for  value,  without  notice,  the  pledgee  being 
chargeable  with  notice  of  fraud     .... 

and  upon  a  sub-pledgee  of  mining  stock    ....    430 

and  of  the  fraudulent  use  of  stock  to  fill  a  "borrowed"  con- 
tract   43°.431 


024  INDEX. 

MINORS.  PAGE 

contract  of,  as  sureties         ......    266 

stock  speculations  of,  upon  securities  and  margins  267,  403,  404 

MISAPPROPRIATION  IN  PLEDGE. 
Negotiable  Collateral  Securities. 

presumptions  in  favor  of  pledgees  for  value,  without  notice, 

under       ........      90 

and  of  blank  acceptances  and  accommodation  paper,  under         89 
use  of  accommodation  paper,  under          .  .  .  .      5(> 

pledgee,  when  protected  against  pledger,  under  re-delivery,  with 
restrictive  indorsement     .  .  .  .  .  .95 

pledgee  for  value,  without  notice,  from  agents,  under        .  94 

rule  enforced  in  English  cases        .  .  .  .  95 

pledge  of  negotiable  bonds,  by  agents,  under  .  .  9ft 

rights  of  the  pledgee,  where  given  in  place  of  forged  securities      91 
or  where  forgery  occurred  in  the  drawing  or  indorsement  of 

bills  of  exchange     ......  92 

by  bankers,  intrusted  with  title,  under  indorsement        .  96 

or  by  executors  and  administrators,  the  pledgee  without  notice       98 
pledgee  of  accommodation  paper,  chargeable  with  notice  of 

fraud,  under      .......      51 

where  misappropriated  for  antecedent  debts  .  .  52 

or  received,  after  maturity,  under  .  .  .  .93 

surety's  liability  to  holder  for  value  of  accommodation  paper, 

under      ........    264 

securities  of  estates,  where  pledgees  are  chargeable  with  notice      99 
pledges  of  notes  and  mortgages,  under     ....    227 

notes  and  mortgages,  indorsed  in  blank,  pledged  by  an  agent, 

under       ........    227 

such  pledges,  where  pledgee  is  chargeable  with  notice  of    228,  229, 

243 

pledgees  of  stock,  with  equitable  title  only,  under  acts  of  mis- 
appropriation by  trustees         .....    362 

Misappropriation  of  proceeds  of  Loan. 

firm  not  discharged,  where  partner       ....  70 

nor  where  a  cashier  transferred  collateral  paper  for  an  author- 
ized loan,  but  ......     97,  98 

indorsees  of  note,  secured  by  mortgage,  when  affected  by    192,  193 
or  assignees  of  bonds  and  mortgages,  with  certificates  of  "full 

payment"  indorsed  .....          244 

or  a  pledgee  of  stock  certificates  for  value,  from  an  execu- 
tor, where      .......          398 

MORTGAGE  SECURITY. 

indorsee's  title  to  the  mortgage  security,  free  of   antecedent 
equities  .......  207,  208 

rule  in  the  United  States  Supreme  Court  .  .  .       209,  210 


INDEX.  625 

MORTGAGE  SECURITY—  Continued.  PAGB 

New  York  view  of  notes  and  mortgages      .  .  .         211 

rule  in  Massachusetts,  Maine,  New  Hampshire,  Iowa,  Wiscon- 
sin, Missouri,  and  Kansas  ....  212-215 

indorsee's  title  under  fraudulent  releases  of  mortgage    .  .    216 

statutory  provisions  relative  to  priority  under  the  rule         .          216 
indorsee's  title  under  insolvency,  or  payments      .  209,  213,  214 

rule  under  which  the  indorsee  in  enforcing  the  mortgage  is  sub- 
ject to  equities  ......    216 

rule  in  Illinois  and  in  other  states          ....  217-229 

rule  as  to  negotiable  bonds  and  accommodation  paper     .       222,  223 
and  as  to  collateral  matters        .  .  .  .  .  218,  219 

and  where  notes  and  mortgages  are  made  to  be  used  to  raise 
money,  by  loan  or  otherwise ;  or  are  sold  with  consent  of 
the  mortgagor  .    .  ...  219,  221 

Enforcement  of  Mortgage  security. 

mortgage  enforced  at  same  time  as  principal  note      .  .         198 

judgment  on  the  note  as  affecting  the  mortgage  security  .    198 

when  enforcement  in  equity  barred      ....         201 

pledgee  entitled  to  foreclosure  and  sale     ....    235 

the  effect  of  entry  and  possession  by  pledgee  .  .         235 

such  entry  as  a  payment  of  notes  held  as  collateral  security    235,  236 
indorsee's  collection  of  notes,  where  not  chargeable  with  notice 

of  payments  .....  191,  192 

and  by  the  pledgee  and  sub-pledgee  .  .  .       232,  233 

sub-pledgee  restricted  in  equity  in  certain  states,  to  amount  of 

original  loan       .......    223 

the  recovery,  where  notes  are  received  unindorsed    .  .         191 

credits  on  mortgage  notes,  when  to  be  explained  .  .    193 

fraudulent  releases  of  record  by  mortgagee  as  affecting  indor- 
see's title  .  .  .  .  .194 

MORTGAGE. 

title  of  the  pledgee,  under  indorsement  of   notes  and  assign- 
ment of  mortgages  • 
assignment  of,  without  the  negotiable  notes    .  .  . 
assignee  of,  a  secondary  trustee  for  note  holders            .  .    186 
mistakes  in  mortgage  deeds  as  defense  against  an  indorsee  for 
value             ....••• 

indorsee's  rights  to,  when  once  freed  of  equities  .  .    190 

estoppel  of  owner,  to  dispute  title  of  innocent  indorsee  for 

value        ...  ....    190 

MORTGAGOR. 

pledgee's  title,  as  against  mortgagor,  upon  foreclosure,  entry, 

9^fi 

and  possession  ......    •*«» 

O'-^A 

and  as  against  the  pledgor         .  .  •  •          • 

40 


626  INDEX. 

MORTGAGOR—  Continued.  PAGE 

when  assigned  with  consent,  mortgagor  estopped  to  set   up 

equities 119,  189,  221,  583 

when  entitled  to  set  off  as  against  holder  for  value    .  .  189,  199 

recovery  where  the  principal  note  is  a  forgery      .  .  .    189 

or  where  the  negotiable  notes  are  separated  from  the  mortgage 

security   .  ......    199 

NEGOTIABLE  NOTES  AND  MORTGAGES. 

indorsement  of  note  as  carrying  mortgage  security,  whether  as- 
signed or  not.  ...  ...          183 

where  indorsement  is  of  part  of  notes  only  .  .  .    184 

assignment    of     mortgage,     separate     from     the     negotiable 

notes,  .......   185, 186 

indorsee's  control  of  the  mortgage  security,  although  not  as- 
signed .  ......     186 

indorsee  title  as  subject  to  record,  and  his  record  of  assign- 
ment         187,  188 

indorsee  when  subject  to  equities  under  traudulent  m&rtgages 

or  forged  notes  .  .  .  .  .  .189 

rule  where  mortgage  voidable  only        .  .  .  189,  190 

recovery  of  the  indorsee      .  .....    191 

the  pledgee,  when  subject  to  equities,  .  .  .    191,  192 

NOTE,  THE  PLEDGOR'S  PRINCIPAL. 

pledgee's  right  to  enforce  payment  of,  upon  default        .  .    137 

although  holding  collateral  notes  unpaid,  or  himself  become 

purchaser  .......    138 

pledger's  liability  on,  in  cases  of  failure  to  give  him  notice  of 

non-payment,  or  to  collect  collateral  notes          .        118,  137, 138 
pledgee's  recovery  on  .  .  .  .  .  .137 

upon  deficiency  in  realization  of  collateral  notes,  pledgee  may 

sue  on      ........    122 

presumption  of  payment  as  arising  from  retention  of  collateral 

notes       ........    125 

judgments  upon  collateral  notes  as  extinguishing  the  debt    .         141 
defenses  against  pledgee  in  his  action  on  principal  note    107,  108, 113 
defense,  that  pledgee  has  lost  collateral  notes        .  .  .    138 

or,  that  they  were  lost  by  third  person  selected  by  the  pledger    139 
NOTE,  SECURED  BY  MORTGAGE. 

retains  its  negotiability,  although  reciting  "secured  by  mort- 
gage"     ........     19G 

or  where  indorsed  "without  recourse"  by  the  mortgagee  and 

payee  ........         197 

rule  as  applied  to  long-lime  paper  »  .  •  196 

as  affected  by  release  of  mortgage        .  .  .  .197 

or  by  a  void  or  fraudulent  mortgage          .  .  .    197 

indorsee's  recovery  upon  notes  ....         197 


INDEX.  627 

NOTE,  SECURED  BY  MORTGAGE— <7<mtfnu«Z.  PAGE 

and  where  payments  have  been  made,  but  not  indorsed  .  .    197 

and  where  given  for  an  illegal  consideration  .  .  226 

upon  deficiency  under  foreclosure  decree,  indorsee's  suit  upon 

principal  note    .....  198 

indorsee's  recovery,  where  chargeable  with  notice  of  fraud        .    226 
(See  ENFORCEMENT  OP  MORTGAGE  SECURITY.) 
NOTES  HELD  AS  COLLATERAL. 

requirements  of  reasonable  and  ordinary  care  and  diligence,  and 

good  faith,  by  the  pledgee,  in  the  collection  of         .  .    147 

pledgee,  when  accountable  for  loss     ....    148, 149 

or  where  the  liability  of  the  pledger,  as  indorser  of  collateral 

notes,  is  discharged        ......    148 

pledgee's  liability  for  mere  passive  delay  in     .  .  .         ]  59 

or  misconduct  of  banks  or  persons  employed  as  agents  to          .     150 
pledger's  rights  where  default  has  occurred  on  the  part  of  such 

agents     .  .  .  .  .  .  .  .    150 

pledgee's  election  upon  which  to  sue,  or  upon  all  at  once,  at 

maturity  .......    144 

or  the  pledger  upon  his  indorsement  of  ...  140, 146 

liabilities  of  parties  to,  where  pledgee  has  other  ways  to  enforce 

collection  of  principal  notes  ....    145 

such  liabilities  as  affected  by   payments  of   pledgor,  subse- 
quently to  indorsement  of  .  .  .  .     145 

and  where  the  maker  is  chargeable,  with  notice  of  indorse- 
ment of  .......    146 

parties  bound  upon,  although  loan  be  illegal  .  .    94,  177 

and  where  indorsement  of  is  void  by  statute        .  .          173,  177 

pledgee's  duty  to  present  and  give  notice  of  non-payment  of     .    118 
liability  of  parties  on,  although  held  by  pledgee  unindorsed  121 

pledgee's  duty  to  collect       .  .  .  .  .  .    120 

when  unaffected  by  power  of  sale         .  .  .  .121 

where  the  principal  note  is  barred  by  statute  of  limitations,  en- 
forcement upon  .....        133.  134 

failure  to  collect,  when  a  payment  of  principal  debt         .  .    119 

liabilities  of  parties  on,  when  unaffected  by  misappropriation 

of  the  loan         .......      98 

NOTICE. 

Negotiable  Collateral  Securities. 

essentials  of  notice  of  fraud  or  misappropriation,  to  defeat  tne 

title  of  the  pledgee  for  value  .  .  .  51,  100 

pledgee  of  accommodation  paper,  with  notice  of  fraud,  not  a 

bona  fide  holder  ....  50,  76,  78,  79 

the  notice  necessary  to  charge  pledgee  with  misappropriation 

by  partners       .  .  .  •  •  •  78,  79 

nnd  bankers,  from  designatory  words  •          •  ,       .      84 


C28  INDEX. 

NOTICE—  Continued.  PAGE 

Negotiable  Collateral  Securities. 

or  by  the  terms  of  the  collateral  security  .  .          102,  103 

notice  as  a  question  of  construction,  and  a  matter  of  law  .    102 

the  grounds  upon  which  the  title  of  the  pledgee  for  value,  are 

subject  to  defeat  .....          100,101 

•when  without  possession,  pledgee  of  notes  and  mortgages  sub- 

jlct  to  equities  .....        189,  193 

when  failure  to  require  production  of  negotiable  notes  will  op- 
erate as  notice    .......    193 

purchasers  or  subsequent  mortgagees,  with  notice,  or  release 

without  pajrment  ......     194 

where  such  securities  show  a  trust  upon  their  face          .       228,  229 
Quasi-negotiable  Collateral  Securities. 

indorsements  of  certificates  of  stock,  to  relieve  pledgees  from 

liability  as  stockholders     .....    372,  374 

pledgees  when  chargeable  with  notice  of  restrictive  interest  of 

piedgor,  upon  .  .  .  .  .  421 

or.  where  chargeable  with  inquiry,  and  making  none  .  421,422 
as  implied  from  use  of  "  trustee  "  upon  stock  certificates  .  393-396 
and  as  to  mining  stock,  issued  to  persons  "  as  trustees"  .  896,  397 
the  pledgee's  title  to  trust  stocks,  where  chargeable  with  .  393 
the  rule  as  applied  to  pledgees  from  executors,  chargeable  with,  398 
and  to  creditors  or  purchasers  of  the  pledgee's  rights  .  388 

the  pledgee  of  warehouse  receipts,  under  the  same  rules         561-563 
Wlwn  Notice  not  presumed. 

in  cases  of   misappropriation,  by  the   terms  of    the    instru- 
ment    103,  104 

from  the  words  "  as  curator "          .  .  .  .       375,  376 

in  the  case  of  "as  trustee,"  as  used  in  mining  stocks  .  396,  397 

from  the  mere  fact  of  executors  pledging  stocks  of  estates        .    397 
from    indorsement "  without   recourse"  by  mortgagees  and 

payees  .  .  .  .  .  .  197,  225 

of  the  terms  of  mortgages  from  indorsement  of  notes  showing 

"  secured  by  mortgage "  on  their  face       .  »         .  .         196 

from  non-production  of  notes,  secured  by  a  prior  mortgage  as 

against  a  lender  of  money  on  a  clear  title  of  record         194,  195 
essentials  necessary  to  defeat  the.  indorsee's  title       .  .  196 

NOTICE  BY  PLEDGEES  OF  BILLS  OF  LADING. 

obligation  of,  as  to  giving  notice  to  any  one         ..         .  .    525 

where  holding  a  bill  of  lading  indorsed,  to  carrier  of  his  in- 
terest      .  .  .         .  .  .        .  V  •         .        628, 531 

or  to  a  wharfinger  or  warehouseman    ....         528 

a  wrong  delivery  as  an  excuse  against  a  pledgee  .  .    628 

duty  of,  where  issued  in  sets  of  three  .  .  .         629 

or  where  only  one  bill  is  obtained          .  •          •          .    629 


INDEX.  629 

NOTICE  BY  PLEDGEES  OF  BILLS  OF  LADING-CforfintuA  PAGE 
delivery  by  the  shipowner  when  good,  on  any  one  of  the  bills  529 
title  of  pledgee  of  the  first  indorsed  of  a  set  .  .  530 

effect  of  tender  of  a  duly  indorsed  bill  of  lading 
NOTICE  BY  RECORD. 

indorsee  of  mortgage  notes  as  subject  to  record        .  .  187,  215 

and  as  to  conveyances  subsequent  to  recording  his  mortgage  .  187 
no  record  required,  as  between  the  parties  .  .  188,  215 

equity  of  prior  assignees,  with  possession  without  record  .  189 
without  delivery,  mere  record  of  assignment  .  .188,189 

right  of  a  subsequent  indorsee  or  purchaser  of  mortgage  notes  195,  215 
indorsee  of  notes  when  affected  by  fraudulent  discharge  of  rec- 
ord by  mortgagee,  ....  194 
and  where  mortgagee  believes  the  notes  to  be  paid         .           .    194 
and  a  purchaser,  with    notice,   acquiring    rights  under  such 

release     ........    194 

assignment  of,  by  independent  instrument,  without  delivery  221 
transfer  of,  as  collateral,  in  a  separate  instrument  with  delivery  214 
assignees  of  bonds  and  mortgages  should  notify  mortgagors  of 

the  assignments  ......    248 

rule  where  such  notice  is  given,  as  to  payments         .  .         248 

OPTION  DEALS— THE  BROKER'S  SUIT. 

broker's  option  deal  for  his  customer         .  .        460, 461 

"seller's  option"  contract          .....          402 

speculative    option    contracts  to  be  settled  upon  differences 

merely  ......  463,  465 

the  rule  where  one  party  acts  in  good  faith          .  .  .    464 

validity  of  option  deals,  as  showed  by  evidence        .  466,  468 

stockbroker's  option  contract,  on  purchase  of  stock         .        469,  470 
other  option  deals,  upon  stock  and  other  exchanges  .          471 

broker's  option  deals  on  boards  of  trade    ....    471 

options  "puts,"  "calls,"  "straddles,"  and  "shaves"  472,  474 

broker's  suit  for  losses  on  trades      ....        475,  476 

or  where  payments  made  by  brokers  of  differences  at  customer's 

request,  and  commissions  charged       ....    477 
or  upon  notes  given  for  differences  paid          .  .  .          479 

broker's  suit  for  advances  made  or  commissions  earned  upon 

illegal  and  void  gambling  trades    ....          479 
and  where  the  deals  are  bets  upon  the  future  prices,  with  no 

intention  to  deliver  or  receive        "...          481 
and  upon  illegal  contracts  to  "  corner  "     ....    482 
relief,  when  given  to  the  customer        ....          483 
OVER-DUE  PAPER. 

pledge  of,  where  accommodation  paper          .  .  .      42,  54 

when  without  limitation  as  to  its  use,  the  presumption  as  to  its 

pledge,  after  maturity       .....  54 


630  INDEX. 

OVER-DUE  PAPER—  Continued,  PAGE 

pledgee  of  negotiable  bonds  and  coupons,  when  subject  to 

equities           .....  61 
mere  presence  of  unpaid  coupons  upon  bonds,  insufficient  to 

destroy  negotiability           .....  61 
the  title  of  the  pledgee  of  coupons,  transferred  fraudulently, 

after  mnturity         .             .....  64 

or  to  paper  of  a  partnership,  pledged  by  a  partner  for  his  own 

debt 78 

or  where  indorsed  to  an  agent,  and  misappropriated  .  .  93 
or  where  such  paper  is  lost,  or  stolen,  and  pledged  .  93,  127,  226 
such  paper,  when  subject  to  defenses  and  equities  connected 

with  it,  or  to  collateral  matters      ....  127 

and  to  charges  for  losses  of  collateral  notes  given  by  its  maker  127 

pledgee's  right  to  sell  such  paper,  after  failure  to  collect      .  126 

and  to  extend  the  time  of  its  payment        ....  126 
collection  of  such  paper,  under  agreement      .           .              125,  126 
PAYMENTS. 

Application  of,  upon  Collateral  paper. 

application  of,  in  payment  of  debts  at  maturity   .           .           .  182 

and  upon  collection  of  "  short "  paper  .  .  .  132 
pledgee,  when  chargeable  with  interest  upon  collections  of 

"short  "paper         ......  133 

creditor's  right  of  selection,  where  held  as  security  for  several 

notes             .......  282 

creditor's  election,  as  affected  by  secret  equities  .  .  .  283 
rule  as  to  election  of  application,  when  applied  in  favor  of 

sureties         .......  283 

priority  rule,  of  mortgage  notes,  governed  by  the  maturity  of 

notes              .           ......  203 

indorsees  of  mortgage  notes,  when  subject  to  the  rule  of  priority  203 
priority,  as  given  under  contract  to  the  last  or  any  note          203,  204 

the  right,  when  defeated  by  neglect           ....  204 

rule  where  all  notes  become  clue  upon  default           .           .  204 

application  of  the  pro  rata  rule       ....         204,  205 

and  in  cases  where  the  payment  of  long-time  bonds  is  secured  205 

claim  of  the  indorsee  of  the  transferred  note  when  preferred  205 

priority  of  the  first  note  indorsed,  in  absence  of  contract  .  206 
pledgee's  rights,  as  against  payments  on  mortgage  notes  to  an 

agent,  with  apparent  authority           ....  195 

or  to  a  trustee,  with  apparent  authority  .  .  .  196 
or  to  fraudulent  mortgagee,  although  after  negotiation,  in  favor 

of  a  lender  upon  new  notes        .....  195 

or  of  a  credit  of,  on  a  mortgage  note  ....  193 
or  upon  bonds,  secured  by  mortgage,  after  assignment  247,  249 

where  paid  before  due,  and  the  collateral  retained          .           .  248 


INDEX.  631 

PA  YMENTS—  Continued. 

Application  of,  upon  Collateral  paper.  PAGE 

duty  of  the  assignee  to  give  notice  to  the  mortgagor  to  protect 

himself  from       .......    248 

subrogation  to  securities  as  given  upon,  by  strangers  or  volun- 
teers        ........    275 

or  where  provided  for  by  agreement  .  .  .  275 

title  acquired  by  purchasers  of  notes  upon  the  pledger's  default    276 
Pledgee's  collection  of  Dividends. 

collection  by  pledgee  of  stock,  with  transfer  upon  the  books  of 

the  company      .......    365 

or  where  holding  stocks  indorsed,  upon  notice  to  the  company    365 
pledgee's  right  to  sue  for  dividends,  before  transfer        .  .    366 

and  to  sue  the  pledger,  where  after  transfer  by  indorsement,  he 

collects    ........     266 

collection  of,  as  applied  on  the  debt  at  maturity  .    365,  366 

collections  of,  by  sub-pledgees  of  stock,  with  certificates  in- 
dorsed     ........    363 

right  of  customers  to,   where  brokers  are  carrying  stocks  for 

his  account          .......    366 

right  to,  upon    mere  delivery  of   certificates,  or  special  in- 
terest only  .  .  .  .  .  .  .366 

PARTNERS. 

general  authority  of  to  borrow  money  and  give  collateral  se- 
curity     .  .  .  .  .  .  .  67,68 

the  pledges  when  creditor  of  the  firm,        .  .  70, 71,  72 

the  use  of  (rust  funds  and  securities  by  partners  .  72,  73 

the  pledge  of.  the  name  and  credit  of  the  firm,  for  his  own 

debts,  by  a  partner,  without  consent  .  .  73,  74 

subsequent  ratification  of  such  pledge  .  .  .74,  75 

the  pledge  of  the  name  and  credit  of  firm  as  surety,  acceptor,  or 

guarantor  .  .  .  .  .  .  75, 76 

or  of  accommodation  paper,  indorsed  by  partner  for  his  own  debt      53 
recovery  of  pledgee,  where  received  without  notice,  .      77,  78 

rule  as  to  discharge  of  partnership  where  a  bond  of  one  part- 
ner is  received  on  a  contract  debt,  and  where  new  securi- 
ties of  like  character      .  .  .  .  .  .80 

action  for  conversion  of  collateral  securities  by  partners       .  81 

PLEDGEE'S  TITLE,  AS  AGAINST  CARRIER. 

his  title  to  a  bill  of  lading,  issued  without  delivery  of  goods   515,  517 
such  bill,  as  validated  by  subsequent  delivery      .  .  .    517 

as  against  the  pledgee,   the  shipowner  or  inland  carrier  not 

within  the  rules  of  estoppel  as  to  agency        .  .        516,  520 

exceptional  cases,  founded  on  the  rules  of  equitable  estoppel  as 
applied  to  agents,  as  enforced  in  favor  of  innocent  pledgees 
for  value  .  .  .  520,  522, 543 


632  INDEX. 

PLEDGEE'S  TITLE,  AS  AGAINST  CARRIER—  Continued.          PAGH 
title  of  the  pledgee,  under  fraud  of  the  shipper,  or  non-delivery 
of  goods  or  forgery  in  the  original  transaction,  as  against 
the  carrier         .  .  .  .  .  .  .    521 

PLEDGEE,  A  PURCHASER  FOR  VALUE. 

of  negotiable  paper,  although  misappropriated  .  .  94 

and  in  like  cases  of  the  pledge  of  negotiable  notes  and  mort- 
gages .......          228 

the  title  of  the  pledgee  for  value,  without  notice,  as  a  purchaser 

for  value,  without  notice    ....  406,  407 

pledgee's  purchase  of  collateral  securities,  at  sales  under  the  con- 
tract of  pledge         .  .  .  .  .  161, 442 

his  purchase,  where  under  execution  sale  -  . 

or  where  made  under  permission  of  the  court  decreeing  the  sale 
rights  of  the  purchaser  for  value,  at  the  pledgee's  sale  of  collat- 
eral bills  and  notes  .  .  ,  160,  161 
pledgee  receiving  certificates,  indorsed  in  blank,  upon  a  valua- 
ble consideration     .....*-.          350 

pledgee  of  warehouse  receipts  as  a  purchaser  for  value  .          .    555 
PLEDGOR. 

Negotiable  Collateral  Securities. 

pledger's    transfer    or  re-pledge    of    his    residuary    interest 

in -     163,164,229,251 

agreements  for  preferences  to  a  second  pledgee  .          230 

or  a  further  specific  pledge,  where  the  pledgee  retains  posses- 
sion, after  payment  .  . 

pledger's  enforcement  and  collection  of,  upon  indemnity  to  the 
^     pledgee  f  .  .  .  .  .  .116 

his  claim  to  any  surplus  arising  from  the  sale  or  other  realization 

of 164,  165 

and  to  an  action,  where  the  sale  of  assignment  is  a  tort  107,  152,  164 
and  to  the  proceeds  where,  after  payment  of  judgment,  the 

pledgee  sells  the  securities              ....          167 
pledger's  claim  to,  upon  payment  or  tender  of  the  principal  debt       165 
or  upon  a  mutual  rescission  of  the  contract          .           .  .    165 
notice  of  default  and  non-payment  of  collateral  notes  to  pledg- 
er             118,  120 

tender  of  the  debt  by,  as  affecting  his  right  to  return  of  .    165 

pledger's  payment  or  tender  before  suit  for  a  tortious  sale      165,  167 
pledger's  remedy  for  conversion     .  .  .    166,  167,  598,  560 

his  recovery  upon  such  suit       ....      167,  168,  598 
pledger  of  choses  in  action,  when  entitled  to  return  of  collateral    604 
(See  COLLATERAL  BILLS,  DISCHARGE,  EQUITY  JUR.) 
POSSESSION. 

the  possession  of  collateral  securities  by  the  pledgee        .  .11 

rule  aa  to  possession  of  negotiable  bills  and  notes       .          .  13 


INDEX.  633 

POSSESSION— Continued.  PAGE 

re-delivery  for  collection  to  pledger  .  .  .  .11 

the  pledgee's  property  in  securities,  when  not  defeated      .  .      97 

payment  by  pledgee  of  the  sub-pledgee,  before  maturity  and  re- 
delivery,  as  re-sustaining  ....  114 

pledgee's  liability  where  securities  are  placed  by  pledger  in 

the  hands  of  a  third  party  .  139 

the  pledgee's  title  to  stock  where  transferable  only  upon  surren- 
der of  the  certificate,  as  against  a  by-law  permitting  assign- 
ment by  separate  instrument    .....    360 

PURCHASER. 

the  title  of  pledgee  of  collateral  stock  who  sells  to  himself  or  to 

one  acting  in  his  interest     .....          442 

pledger's  remedy  upon  such  sale    .....    442 

pledgee's  purchase  in  sales  on  stock  exchanges  in  transactions, 

between  brokers  .....          443 

title  of  the  bona  fide  purchaser  at  pledgee's  sale  .  .    443 

privity  of  contract  as  between  pledger  and  purchaser  .          443 

or  where  pledgee  of  stock  has  equitable  title  only  .  .    444 

RECOVERY,  PLEDGEE'S. 
Negotiable  Collateral  Securities. 

pledgee's  recovery  upon  principal  notes,  upon  default     .       136,  137 
and  on  notes  secured  by  mortgage        ....          197 

and  where  payments  have  been  made  before  indorsement,  but 

not  credited  ......         191 

and  both  note  and  mortgage  are  founded  on  an  illegal  considera- 
tion .  .....          226 

recovery  of  the  bona  fide  pledgee  of  accommodation  paper, 

without  notice  ...  ...      150 

or  where  proceeds  of  accommodation  paper  of  partnership  are 

misappropriated         .....  79 

or  blank  acceptances  or  accommodation  paper  are  received  in 

pledge     ........      89 

or  upon  commercial  paper  over-due  .  .  .          126 

and  where  subject  to  proof  of  payments  made  to  pledger  before 
transfer,  and  to  equities  arising  from  misappropriation  by 

pledger .127 

or  such  collateral  paper  is  fraudulently  pledged          .  .     94,  95 

or  the  enforcement  is  sought  by  a  sub-pledgee      .  .  .     109 

or  suit  upon  such  paper  is  against  the  parties  liable   .  .  120,  121 

proof  of  the  pledgee  in  insolvency  .  .         / .        163,  164 

where  holding  several  securities  the  pledgee  may  proceed  upon 

all,  at  once        .......    144 

recovery  upon  a  bond  from  principal  and  surety        .  .         286 

pledgee's  collection  of  negotiable  bonds    .          .    122,  146,  160,  159 


034  INDEX. 

RECOVERY,  PLEDGEE'S— Continued. 

Negotiable  Collateral  Securities.  PAGE 

and  right  to  enforce  the  mortgage  security  given  to  secure  their 

payment  ......        159,  160 

recovery  of  pledgee,  where  chargeable  with  notice  of  misap- 
propriation of  accommodation  paper  .  .         55,  123 
or  as  against  the  accommodating  party           .           .  .    56,  123 
and  in  cases  of  misappropriation  and  fraud  for  antecedent  debt, 

without  further  consideration        ....  52 

and  where  past  due  paper  is  pledged  by  one  not  its  owner,  in 

fraud 127 

or  bonds  and  coupons  are  pledged,  and  the  pledgor  not  liable 

over  for  any  surplus  .  .  .  .  .61, 105 

and  as  against  a  corporation  using  its  own  bonds  as  collateral 

security         .......          123 

recovery  of  pledgee,  receiving  negotiable  paper  unindorsed,  or 

with  knowledge  of  a  subsequent  indorsement     .  .  192,  226 

or  taking  bills  of  exchange  unindorsed    .  .  .    »      .    123 

or  in  cases  of  misappropriation  of  negotiable  paper  by  bankers  97,  98 
or  where  the  commercial  paper  shows  the  amount  of  terms  for 

which  it  is  held  as  collateral    ..... 
or  where  the  loan  upon  which  the  collateral  notes  are  given,  is 

illegal 56,  57 

recovery  of  holders  of  notes  from  sureties  and  makers,  where 

payments  have  been  made        .....     286 
Non-negotiable  Choses  in  Action. 

recovery  of   pledgee,  as  governed  by  the  debt  for  which  the 

chose  in  action  is  held  as  security        .  .  .        602,  603 

the  rule,  as  applied  to  scrip  certificates,  certificates  of  deposits, 

dock  warrants,  and  unpaid  calls  on  shares     .  .  .    603 

RELEASES  OF  MORTGAGES. 

releases  of,  after  negotiation  of  notes,  as  against  innocent  persons 

advancing  money        .  .  .  .  .  195.  215 

or  where  releases  are  made  by  agents,  with  apparent  authority    195 
or  with  notice  of  mortgagor  .....    193 

the  indorsee's  title  to  enforce  the  mortgage  security,  as  against 

such  releases      .  .  .  .  .        193,  197 

indorsee's  suit  on  principal  note,  still  retaining  the  mortgage 

security               ..'....    197 
releases  by  mortgagee,  as  against  pledgees  of  bonds  ami  mort- 
gages   249,  253,  254 

the  proof  admitted  to  show  fraud,  accident  or  mistake         .          250 
REPLEVIN. 

action  of,  to  recover  negotiable  collateral  securities  .          96, 97 

the  pledgee's  right  to,  where  holding  a  bill  of  lading,  as  against 

any  one  attaching  the  goods    .  .  .  .  543 


INDEX.  635 

SALE  OF  COLLATERAL  SECURITIES. 

Negotiable  Collateral  Securities,  PAGE 

pledgee's  right  of  sale  of  .  .  .  .  .151 

where  such  collateral  paper  matures  later  than  the  principal 

debt 152 

or  the  pledge  is  of  long-time  paper,  or  negotiable  bonds         152,  155 
sale  of,  when  made  under  contract  ....    152 

essentials  of  a  valid  sale  .....  153 

pledgee's  right  of  private  sale,  under  contract      .  .  .    154 

and  to  sell  long  time  bonds,  without  contract  .  .          155 

or  bonds,  where  made  payable  upon  condition      .  .  .    156 

requirements  of  a  valid  sale  of  bonds  .  .  .  157 

the  notice  of  sale,  the  subject  of  agreement  .  .  .    158 

notice  to  be  given  by  sub-pledgees        ....          159 

form  of  notice  of  public  sale  of  collateral  securities,  whether 
with  power  of  sale  or  without         .....    153 

Sales  under  Contracts. 

sale  of  long-time  paper  under  contract       ....     158 

notice  to  be  given  to  pledger,  under  powers  of  sale    .  .         234 

pledgee's  failure  to  sell  collateral  bonds  under  power      .  .     152 

power  to  "  negotiate "  under  contract  .  .  .          152 

power  of  sale  as  affecting  the  right  to  sue  and  collect       .       121,  153 
attachment  of  the  pledger's  residuary  interest,  under  power  of 

sale  ........    154 

power  of  sale  as  given  in  mortgage  securities  .  .          201 

exercise  of  such  powers,  when  closely  scrutinized  .  .    842 

sales  by  pledgee  of  notes  and  mortgages  to  the  maker          .         234 
Quasi- Negotiable  Collateral  Securities. 

pledgee's  sale  of  stocks,  after  demand  and  notice  .  .    437 

rights  of  the  purchaser  at  such  sale      ....          437 

and  of  sub  pledgees  of  stocks  indorsed      .  .  .         437,  438 

requirements  of  valid  notice  and  sale  .  .  .     441,  442 

sale  by  pledgee,  where  stocks  are  held  as  collateral  for  promis- 
sory notes  .......    439 

contracts  of  pledge  of,  giving  right  of  sale  upon  default       .          439 
private  sales  of  stocks,  under  contract,  below  the  market  price, 

and  to  avoid  liability    ......     438 

remedies  of  the  pledgee  by  foreclosure,  .  .  .    440 

sale  of  stocks,  upon  insolvency  of  the  pledger  .  .         440 

sale  of  stocks  by  stockbrokers,  under  like  conditions         t  440,  441 
sale  by  assignees  in  insolvency        .....    440 

Non-Negotiable  Choses  in  Action. 

pledgee's  sale  of,  after  demand,  and  notice  of  sale  .       597,  598 

effect  of  delay  in  enforcing  a  power  of  sale      .  .  .         598 

aid  of  equity  to  decree  a,  when  refused     .          • .  .  .    598 

(See  NOTICE,  PLEDGOR,  PURCHASER,  STOCK.) 


636  INDEX. 

"  SHORT  "  COLLATERAL  PAPER.  PAGE 

implications  arising  from  its  use  as  collateral       .  .  .14 

pledgee's  right  to  collect  and  enforce  the  same  .  .         124 

his  receipt  of  the  money,  and  its  application  to  the  principal 

debt         .  .  .  .  .  .  .  .124 

STATUTE  OP  LIMITATIONS. 

retention   of   collateral   securities  by  pledgee,   although   debt 

barred      .  .......    133 

rule  under  the  Louisiana  code  ....         133 

effect  of  collection  of  dividends  upon  collateral  notes     .  .    134 

recovery  on  mortgage  securities,  although  notes  barred         .         200 
powers  of  sale  under  mortgages,  as  affected  by  .  .    201 

note  barred,  as  affecting  the  mortgage  remedy       .  .    201,  202 

where  the  bar  of  the  statute  removed,  the  mortgage  security  en- 
forced,  or  judgment  entered  on  note  .  .  .    202 
sale  of  pledged  securities,  as  fixing  the  running  of  statute  236 
lien  of  a  company  on  its  stock,  as  affected  by  the  running  of    .    383 
Action  of  contribution  between  co-securities,  as  affected  by  »        304 
STOCKS  AS  COLLATERAL. 
The  Certificate  of  Stock. 

description  of  .......    343 

and  as  used  as  collateral  security  .  .  .  343,  344 

its  character  as  "  quasi-negotiable,"  and  "  approximating  to  ne- 
gotiable paper ".....  844,  366 

negotiability  of  "  cost  book  "  mining  shares          .  .  .    345 

as  subject  to  a  lis  pendens  .....         352 

use  of,  indorsed  in  blank,  as  collateral  security     .  346,  347,  351 

the  rule  where  charter  provisions  require  powers  of  attorney  to 

be  under  seal       .......    847 

transfer  in  England,  under  indorsements  in  blank      .  .          348 

sub-pledgee  of  stocks,  holding  under  blank  indorsement  .    849 

title  of  innocent  holders  for  value  of  certificates          .  .          416 

their  rights  upon  transfer,  although  made  without  authority         416 
TJte  Transfer  of  Stock. 

pledgee's  right  to  transfer,  holding  possession  of  certificate  357 

presumptions  arising  as  against  company,  from  applications  for 

transfer  without  production  of  certificates  .  .    357 

limitation  of  a  company's  right  to  control  transfer     .  357,  358 

as  controlled  by  the  terms  of  the  certificate  .  .  .    859 

duty  of  the  holder  for  value  of  certificate,  without  notice  359 

his  title,  as  affected  by  a  by-law  providing  for  assignment  by 

separate  instrument      .  .  .  .  .  .    360 

estoppel  of  companies,  by  representations  on  certificates  .    360 

pledgee's  right  to  transfer  collateral  stocks  to  his  own  name         430 
delivery  of  the  certificate,  with  power  to  transfer,  as  between 

the  parties         .......    353 


INDEX.  637 

STOCK  AS  COLLATERAL—  Continued. 

The  Transfer  of  Stock.  PAGE 

and  in  cases  where  an  equitable  title  only  passes  by  delivery  of 

the  certificate     .......    353 

pledgee's  right  to  transfer  of  .  .  .  .         354 

his  power  under  the  pledge  to  transfer  irrevocable,  conditioned 

only  by  payment  of  the  debt  ....    355 

remedies  of  the  pledgee,  upon  refusal  of  company  to  transfer    355 
mode  of  transfer  of  shares  in  England     .  .  .         357, 358 

as  between  the  parties  of  the  contract  of  pledge        .  .         358 

title  acquired  by  the  pledgee,  where  receiving  only  an  equitable 

interest  .......          362 

pledgee's  title,  under  statutes  or  charter  provisions  requiring 

transfer  on  the  books  of  the  company  .  .  .     366 

character  of  the  record  required  ....  356,  357 

discretion  of  directors  as  to  refusing  a  transfer    .  .  .    358 

liabilities  of  a  company,  upon  a  fraudulent  delay  and  refusal 

to  transfer          .......    886 

pledgee's  rights,  as  against  purchasers  at  execution  sales      .         388 
pledgee's  rights,  as  supported  against  cestuis  que  trust  .    894 

the  latter's  claim,  as  against  the  corporation  .  .  394,  395 

effect  of  insolvency,  where  only  equitable  title  is  passed  to  the 

pledgee          .......         364 

,    or  indorsements  or  transfers  are  made,  after  insolvency       .         364 
the  pledgee's  rights,  as  against  assignees  of  insolvent  pledgers, 

where  a  transfer  has  been  obtained  on  the  books  of  the 

company,  or  the  certificate  of  stock  is  held  indorsed     .         363 
receiver's   right    of     an    insolvent    corporation,   pledgor  of 

stocks  .......  363,  364 

pledgee  of  a  surplus  of  collateral  stocks,  as«against  an  assignee 

in  bankruptcy          .  .  .  .  .  .          364 

Pledgee  as  a  Stockholder. 

pledgee,  upon  transfer  and  issue  of  new  certificates,  a          .  368,  369 
or  where  the  transfer  is  obtained  by  a  corporation  holding 

shares  of  stock  as  collateral  ....         400 

transfer,  as  affected  by  secret  equities  between  the  pledgor  and 

pledgee          ...  .  .  .  .  .368,369 

and  by  the  antecedent  liens  or  claims  of  the  corporation  .    369 

pledgee,  a  stockholder,  by  his  acts  in  relation  to  the  stock,  vot- 
ing or  receiving  dividends,  and  other  acts  .       370,  372,  400 
pledgee's  right  to  vote  as  a           .            .            .  .  .    371 

rights  of  the  pledgee  as  controlled  by  statutory  provisions     372-374 
or  where  stock  is  indorsed  "as  collateral  security"  .        373,  375 

or  held  "in  trust"  or  "held  in  escrow"  .  .         .  373,  374 

proof  allowed  to  establish  an  absolute  transfer  to  be  as  and  for 

collateral  security      .....    372,  373,  376 


6S8  INDEX. 

STOCK  AS  COLLATERAL—  Continued. 

Pledgee  as  a  Stockholder.  PAGE 

liability  of  pledgee  as  a  stockholder,  retaining  the  stocks  after 
payment  of  principal  debt,  where  such  company  becomes 
insolvent  .......    375 

the  use  of  stocks  as  collateral  security,  as  shown  by  restrictive 

indorsement       .......    375 

pledgee's  liabilities,  until  re-transfer  .  .  .  874,  375 

Liens  of  Company,  as  against  Pledgees  of  Stocks. 

pledgees,  with  title,  when  subject  to  statutory  or  charter  liens        379 
pledgee's  rights,  affected  by  secret  liens  of  a  company     .        379,  380 
or  by  secret  by-laws,  not  shown  upon  the  certificates  of  stock        381 
presumptions  in  favor  of  innocent  pledgees,  not  chargeable  with 
notice,  as  against  the  discretionary  right  of  companies  to 
refuse  transfer         ......          380 

rights  of  pledgees  of  stock,  issued  by  National  Banks,  as  to  stat- 
utory or  secret  liens  .....          381 

pledgee,  when  subject  to  statutory  enactments  or  charter  provi- 
sions .  .  .  .  .  .  381,  382 

presumptions  arising  from  the  non-appearance  of  such  liens 

upon  the  face  of  certificates  ....         383 

extent  of  the  lien,  under  statutes  or  charters         .  .        382,  383 

limitations  of  such  liens,  as  against  the  pledgee          ,  383,  385 

limitation  as  to  debts  of  the  pledgor  to  the  company,  after  notice 

of  transfer      .......         383 

the  lien  of,  as  enforceable  only  by  judgment  and  execution    384,  385 
pledgee's  rights,  under  waiver  and  laches  .  .  .    384 

his  claims,  where  stocks  have  been  sold  by  the  company  under 

authority  executed  in  an  invalid  manner        .  .        384,  385 

Liens  of  Creditors,  as  against  Pledgees  of  Stocks. 

pledgee  of  slocks  indorsed,  a  holder  for  value  as  against  cred- 
itors .......       385,  386,  388 

claims  of  lenders  of  money  on  stock  certificates,  as  against  cred- 
itors ........          386 

and  in  cases  where  pledgees  have  given  notice  to  the  company 

of  the  indorsement  and  delivery  of  certificates  .  .    387 

creditor  levying  upon  shares  held  by  a  bare  trustee,  as  against 

bona  fide  pledgee     ......          387 

pledgee's  rights,  upon   indorsement  after  pledger's  death,   as 

against  creditors       ......          387 

or  in  cases  where  creditors  are  chargeable  with  notice  of  the 

pledgee's  rights        ......          388 

or  purchasers,  at  execution  sales, also  chargeable  with  such  notice  388 
creditor's  claims,  as  against  an  equitable  pledge  of  stock  .  388 
claims  of  the  pledgee,  as  against  creditors,  where  he  has  done  all 

he  possibly  could    ......          389 


INDEX.  639 

STOCK  AS  COLLATERAL.— Continued. 

Liens  of  Creditors,  as  against  Pledgees  of  Stock.  PAGE 

pledgee  under  statutory  provisions  requiring  transfer,  and  also 

giving  liens  on  stocks  to  creditors  .  .  389,  890 

bona  fide  purchaser's  title,  buying  at  a  sale  under  execution  .  390 
pledgee's  duty,  under  such  statutory  or  charter  provisions  390 

(See  FICTITIOUS  SECURITIES,  FORGERY,  INDORSEMENTS.) 
STOCKBROKERS. 

stockbroker's  general  lien  on  his  customer's  deposits  of  collateral  84 
and  where  collateral  securities  are  deposited  for  a  special  debt  84 
pledgee's  rights,  under  misappropriation  of  negotiable  securities 

by     .  . 95,96 

claims  of,  where  chargeable  with  notice  that  securities  belonging 
to  an  estate,  are  pledged  by  a  fraudulent  person  for  his  own 

debt 395,  396 

his  rights,  upon  paying  proceeds  of  such  securities  to  the  person 

from  whom  received     ......    396 

stockbroker  carrying  stocks,  upon  margins,  as  a  pledgee     .          404 
his  relations  as  pledgee,  sustained  by  the  usual  contract  between 

brokers  and  customers        .....          405 

Massachusetts  rule  as  to  the  relations  of  stockbrokers  and  cus- 
tomers         .......          406 

stockbroker's  right  of  pledging  certificates,  held  by  apparent 

owner,  as  against  the  real  owner  .  .  .          420 

his  claims,  where  resort  to  forgery  and  felony  were  required 

to  perpetrate  the  fraud,  as  against  the  real  owner  .          420 

the  rule  where  lenders  of  money  to  stockbrokers  upon  pledges 
of  certificates  of  stock  for  specific  loans,  claim  to  apply  the 
the  surplus  proceeds  in  payment  of  a  general  balance    .       454,  455 
stockbroker's  loan  or  pledge  of  stocks,  while  carrying  them  for 

his  customer        .......    435 

stockbroker's  liability,  speculating  in  his  customer's  stocks    435,  449 
usage  of  broker,  as  governed  by  contract.  .  .  ,    436 

rule  as  to  the  non-identity  of  stock  extended  to  gold  certificates 

and  warehouse  receipts    .  ....         435, 436 

stockbroker's  right  to  sell  stock,  upon  default  of  margins          .    438 
where  collateral  stocks  are  sold  out  on  the  Exchange,  between 

brokers,  the  pledgee  may  become  purchaser  .  .    443 

usage  of  brokers  to  sell  stocks,  upon  Exchanges,  upon  failure 

of  margins,  without  notice       .....    444 

question  of  reasonable  notice  as  to  putting  up  of  further  mar- 
gins           .444,445 

broker's  liability,  retaining  customer's  stock  after  debt  is  due  446 
broker's  sale,  without  notice,  under  contract  .  .  445,  443 

(See  OPTION  DEALS,  BROKER'S  SUIT,  USAGES.) 


CIO  INDEX. 

STATUTORY  OFFENSES.  PACK 

pledgee's  title,  where  negotiable  paper,  used  as  collateral  secur- 
ity, was  executed  under  circumstances  so  as  to  conic  within 
a  statutory  offense  ......  92 

rule,  the  principal  debt  being  void,  as  to  collateral  securities 

given  for  its  payment          .....          395 

pledgee's  claims,  upon  a  bona  flde  loan,  not  being  chargeable 

with  notice  of  invalidity  in  the  contract  of  pledge         .          401 
STOPPAGE  IN  TRANSITU. 

character  of  the  right  of  the  unpaid  vendor  of  .  .          543 

the  effect  of  the  order  of,  upon  the  contract  of  purchase  .    544 

right,  as  affected  by  an  indorsement  and  delivery  qf  the  bill  of 

lading,  to  a  bona  fide  pledgee  for  value,  without  notice      .    545 
same  rule  where  the  bill  of  lading  is  in  the  name  of  the  pledgee, 

or  of  his  agents  .  .....    545 

pledgee,  a  holder  for  value,  as  against  the  unpaid  vendor    .          546 
vendor's  rights  as  to  the  surplus  of  the  goods,  or  of  the  proceeds, 
after  payment  of  the  advances  of  the  bona  fide  pledgee  for 
value       .  .  .  .  .  ,  .  .    545 

SUB-PLEDGES  OF  COLLATERAL. 
Negotiable  Collateral  Securities. 

pledgee's  right  to  transfer  and  sub-pledge   his  .  .          108 

sub-pledge  of,  for  sums  larger  than  the  principal  debt  108,  233 

sub-pledge  of,  for  sums  not  larger  than  original  advance     112, 113,  233 
rules  of  equitable  estoppel,  as  applied  in  favor  of  sub-pledgees 

of 110,233 

proof  allowed  sub  pledgee  where  the  sub-pledge  is  less  than 
original  advance,  the  parties  to  the  collateral  paper  being 
bankrupt       .  .  .  .  .  .  .233 

sub-pledgee's  recovery  upon  mortgage  securities,  holding  legal 

title  to  the  negotiable  notes  .  .  .  232,  233 

where  sub-pledgee  is  subjected  to  the  rule  under  which  recov- 
ery on  the  mortgage  is  restricted  by  equities  .  .    233 
distinction  between  sub  pledgees  of  negotiable  and  non-negotia- 
ble collateral  securities              .            .            .            .            .82 

sub-pledgee's  discharge  as  to  pledgor  .  .  .   113,  114 

Quasi-negotiable  Collateral  Securities. 

pledgee's  right  to  transfer  and  sub-pledge  stock  certificates  424 

sub-pledge  of  stock  certificates,   indorsed  in  blank,  for  sums 

larger  than  the  original  loan  ,          425 

sub-pledgee's  title,  as  based  upon  the  legal  title  and  apparent 
ownership  of  the  pledged  stocks,  when  under  blank  in- 
dorsement .  .         •-.  .  .        425, 426 
the  rules  of  equitable  estoppel,  as  applied  in  favor  of  bona  fide 

sub-pledgees  of  stocks  .....         426,  427 

use  of  stock  certificates,  under  such  rules       .  .  .  427,  428 


INDEX.  641 

SUB-PLEDGES  OF  COLLATERAL— Continued. 

Quasi-Negotiable  Collateral  Securities.  PAGE 

sub-pledgees,  receiving  stock  certificates,  indorsed  in  blank,  from 

sub-pledgees,  upon  bona  fide  advances,  within  the  rules          428 
last  sub-pledgee,  upon  a  bona  fide  loan,  without  notice,  a  holder 

for  value,  in  the  usual  course  of  business  .  .  428 

like  rules  applied  in  favor  of  sub-pledgees  of  mining  stock, 

although  issued  to  the  holder  "  as  trustee  "         .  .          430 

sub-pledgee's  title,  under  an  authorized  pledge  of  the  stocks  of 

an  estate,  under  estoppel    .....          3S9 

title  of  sub-pledgees,  receiving  certificates  of  stocks  from  per- 
sons claiming  only  as  agent,  agents  or  attorneys,  as  against 
the  real  owner         .......    433 

and  where  the  pledger  has  a  limited  interest  only  in  the  stocks    434 
sub-pledge,   under  statutory  enactments,  prohibiting  transfers 

and  sub-pledges  of  stocks  and  other  collateral  securities          430 
SURETY. 

contract  of  a  .  .  .  .  .  .          259 

contract,  as  shown  by  terms  of  the  instrument,  or  by  parol 

evidence        .......          260 

creditor's  duty,  with  notice  of         .....    260 

the  general  liability  of,  and  its  limitations      .  .  .  262 

and  on  invalid  loans,  or  forged  or  fraudulent  paper,  and  on 

penal  bonds  .  .  .  .  .  263,  264 

obligation  of  the  surety,  upon  the  principal  note  .         283,  284 

as  affected  by  the  acceptance  by  creditor,  of  securities  from 

principal    ........    314 

or  by  money  collected,  before  maturity  of  .  .          315 

a  surety's  rights  under  statutory  provisions,  as  to  notice  to  cred- 
itor to  bring  suit      ......          284 

character  of  the  notice  required  under  such  statutes         .  .    285 

liability  of  the  creditor,  neglecting  to  sue  upon  notice  .          284 

surety's  liability  upon,  as  controlled  by  the  judgment  against 

the  principal  ......  285 

Subrogation  to  Collateral  Securities. 

creditor's  liabilities,  as  to  enforcement  of  collateral  securities         268 
conditions  under  which  the  creditor  is  required  to  resort  to  such 

collateral  securities  ....  269,  270 

right  of  subrogation,  where  its  enforcement  would  work  in- 
justice .......  272 

right  of  the  surety,  upon  payment,  as  to  collateral  securities 

held  by  creditors 271,  273 

right  of  a  surety  assignable  .....     272 

assignee's  right  as  against  new  advances,  made  after  notice  273 

securities  to  which  the  surety  is  subrogated    .  .  .          273 

special  liens  of  the  federal  and  state  governments  ,  .    274 

41 


642  INDEX. 

SURETY—  Continued, 

Subrogation  to  Collateral  Securities.  PAGE 

right  of  the  surety,  where  both  principal  and  surety  appear  as 

principals  .  .  .  ,  .  .  .    278 

the  payment  of  the  debt,  as  an  essential  preliminary  to  subro- 
gation    .....  .  275 

surety's  relief  as  against  legal  process  by  application  of  secur- 
ities held  by  creditors    .  .  .  .  .  .    275 

surety's   right  of   subrogation  to  judgment  on  note,  with  or 

without  assignment       .....         277,  278 

surety's  rights,  in  the  absence  of  formal  assignment  .          277 

subrogation  to,  upon  paying  judgment  against  himself  as  surety    293 
surety's  right  to  the  original  debt,  where  resort  is  had  to  collat- 
eral securities     .......     277 

right  of,  when  defeated  by  laches  or  by  estoppel       .  .          277 

upon  a  bona  fide  sale  of  securities,  the  surety  is  liable  on  the 

principal  note  for  any  deficiency  .  .  ,          270 

Surety's  Collection  of  Collateral  Securities. 

enforcement  of  securities  before  payment  by  surety         287,  288,  296 
surety's  liability  as  a  valuable  consideration  for  the  transfer  of 

securities       .......  288 

recovery  of  surety  where  the  security  is  given  upon  the  condi- 
tion to  pay  the  debt          .,  .  .  .  289,290 
a  surety  seeking  relief  in  equity  may  make  the  creditor  and 

principal  parties       .  .  .  .  .  288,  289 

rule  where  a  surety  must  pay  before  resorting  to  collateral  291 

and  where  an  equity  of  equal  weight  would  suffer    .  .          291 

pledgee's  agreement  with  creditor  to  collect  debt  from  collateral 

securities       ,  .  .'•      .  ^  .  .  .          270 

Creditor's  Subrogation  to  Surety's  Collateral  Securities. 

character  of  the  creditor's  right  to  resort  to  such  collateral     279,  281 
limitations  of  the  right  .....  280 

character  of  the  interest  of  the  creditor  acquired  in  such  secur- 
ity     .  .  ,  , ' .  .  280 
surety's  right  to  transfer  such  collateral  to  the  creditor           281,  282 
and  to  securities  held  by  an  agent  upon  a  loan  obtained  for  his 

principal       .......  281 

contribution  between  accessory  sureties    .  .  .        303,  306 

Insolvent  Principal. 

surety's'  right  of  set-off  as  against  an  insolvent  principal  292 

Surety's  Action  at  law  against  Principal. 

surety  recovery  at  law,  as  dependent  upon  payment        .        294,  295 
surety's  recovery,  although  entitled  to  execution  against  the 

principal  .......     295 

surety's  rights  under  payments  made,  under  a  mistaken  belief 

of  his  liability    . 295 


INDEX.  643 

SURETY— Continued. 

Surety's  Action  at  law  against  Principal.  PAGE 

and  where  the  principal  has  assigned  his  whole  property  for 

the  benefit  of  sureties    .....        295,  296 

discharge  of  sureties,  by  extension  of  time  upon  indorsement 

and  delivery  of  collateral  securities    ....     313 

or  if  money  is  borrowed  on  new  note,  the  old  note  being  re- 
tained by  surety  as  collateral  .....        315,  316 

or  new  note  of  principal  is  accepted  upon  time          .  .          316 

or  if  surety,  owing  to  representations  of  the  creditor,  has  re- 
leased securities  held  by  him         ....          317 

discharge  of  surety  by  surrender  or  loss  of  collateral   secur- 
ities        .......         308,  309 

or  where  the  creditor  releases,  surrenders,  impairs,  destroys,  or 

fraudulently  transfers  such  collateral  security    .  .  309 

defense  thus  arising,  available  in  law  and  equity  .  .     310 

limitations  of  the  rule    ......  311,  313 

surety's  right  of  set-off,  as  against  insolvent  principal     .  .    292 

his  relief  in  equity,  where  holding  securities  .  .  .          293 

rights  of  holders  of  notes,  as  against  securities  of  indorsers        .     330 
rights  of  holders  of  notes  to  subrogation,  as  against  creditors    330,  331 
mere  inaction  or  passive  delay  of  creditors  to  enforce  collateral 

securities,  as  affecting  sureties       ....          312 

or  to  sell  negotiable  bonds  held  as  collateral          .  .  .    314 

or  to  appropriate  funds  of  debtor  upon  deposit          .  .          314 

or  the  acceptance  of  collateral  security    ....     314 

surety's  claim,  where  collateral  paper  matures  earlier  than  the 

principal  note     .......     315 

surety  as  discharged  by  changes  in  the  instrument    .  .          318 

or  by  a  valid  extension  of  time      .  .  .  320-322,  323 

creditor's  reservation  of  rights  to  proceed  against  surety,  while 

releasing  principal  ,  324,  325 

SURPLUS. 

pledge  of  a,  from  collateral  securities,  where  made  with  notice 

to  pledgee     .  .  .  .  .  .     10, 163 

or,  by  a  pledgee,  with  notice  to  the  sub-pledgee  .  ;  .    596 

or  by  special  indorsement         .  .  .  .  .    .       163 

and  to  extend  the  securities  to  other  debts  of  the  pledger  .    596 

cases,  under  misappropriation,  as  to  the  responsibility  of  pledgee 

to  pledger  for     .......    105 

right  of    pledger,    upon    realization    of   collateral    securities, 

to 122,  144,  160 

pledger's  action,  for        ......  164,  165 

pledgee,  as  a  trustee  for  the  pledgor,  of     .  .  .  .    236 

effect  of  acceptance  of,  in  cases  of  tortious  sales        .  .          167 

rule,  as  applied  in  favor  of  makers  of  paper  fraudulently  pledged 

by  note-brokers,  the  pledgee  holding  a     .  .       124,  125,  596 


644  INDEX. 

TENDER  BY  PLEDGOR.  PAQB 

by  assignee  of  the  interest  of  part  only  of  the  members  of  a 

partnership,  to  a  pledgee,  when  insufficient      .  .  81 

rights  of  a  pledger  of  collateral  stocks  pledged  for  a  specific 

debt,  upon  tender,  as  against  a  claim  of  further  lien  .    459 

rule  as  to  tender,  where  a  separation  of  the  securities  from  the 

the  principal  note,  has  been  made        ....    459 
equitable  relief  to  pledgqr  by  ordering  return  of  securities,  as 

controlled  by  failure  of  payment  or  tender  of  debt         .          403 
rule  at  law,  governing  the  rights  of  the  pledgers,  seeking  to  re- 
cover collateral  securities,  without  payment  or  tender  of  the 

debt     -    » 167,  108, 458 

pledger's   tender   or    payment    before    suit    for   a   tortious 

sale 165-167, 598 

pledger's  mere  offer  to  pay,  without  a  tender  .  .          165 

the  tender  or  payment  to  the  holder  of  the  collateral  after  ma- 
turity of  principal  note        ....  599,  600 

TROVER. 

action  of,  where  pledger  has  been  entrusted  temporarily^vith 

negotiable  collateral  .....  12 

or  where  such  possession  has  been  given  for  collection   .  .    235 

and  in  cases  of  unauthorized  sales  of  collateral  stocks          .          457 
or  where  a    company  or   national  bank  refuses  to  transfer 
shares  of  stock  held  as  collateral,  upon  demand  and  pre- 
sentation of  the  certificates  .  .  .  355,  381 
and  by  the  pledgee  of  the  first  indorsed  of  a  set  of  bills  of  lading, 

as  against  persons  unlawfully  dealing  with  the  goods          .    531 
action  of,  upon  transfer  of  stock  by  pledgees,  in  order  to  pro- 
tect their  collateral  securities  from  liens  of  the  company  or 
creditors       ....  377,  378,  431,  458,  459 

the  rule,  as  applied  to  sub-pledgees  ....    378 

or  to  avoid  injury  to  the  financial  credit  of  the  pledgee        .          378 
or  by  voting  at  meetings       ......    371 

or,   where  the  pledgee  redeems  the  collateral  paper  of   the 
pledger  from  the  sub-pledgee,  before  maturity  of  the  prin- 
cipal debt      .  .  .  .  •    •'••'      114 

TRUSTEES. 

right  of  innocent  pledgees,  for  value,  of  bonds  and  mortgages 

fraudulently  assigned  by  trustees       • .  .  .  .    243 

and  of  notes  and  mortgages  showing  a  "  trust "         .  .          238 

when  notice  is  charged,  by  the  use  of  "trustee"  in  the  mort- 
gage security  .  ,  .  .  .  228, 229 
use  of  "  trustee"  in  certificates  of  stock  as  against  pledgees  for 

value      .  .  .  ...  .  .          894 

right  of  innocent  pledgees  of  negotiable  securities  from    .       98,  99 


INDEX.  645 

TRUSTEES— Continued.  PAGE 

the  title  of  the  innocent  pledgee,  upon  transfer  on  the  books  of 

company       .......          394 

or  where  a  loan  upon  stocks  is  void  under  statutory  provisions, 

when  made  by  a  trustee  for  his  own  purposes    -  .          395 

use  of  the  words  "  as  trustee"  in  mining  stocks    .  .  .    396 

title  acquired  to  such  stocks  by  the  innocent  pledgee  for  value      397 
pledgee  of  stocks,  holding  them  indorsed  so  as  to  show  their  use 

as  collateral  security  .....  362,  363 

use  of  the  words  "in  trust"  and  "held  in  escrow"  upon  certifi- 
cates ........          373 

claims  of  pledgees  receiving  certificates  of  stock  from  trustees 

as  collateral  security  for  their  own  debts  .  .          392 

the  rights  of  the  cestuis  que  trust,  as  against  the  pledgee  .    392 

presumptions  arising  from  entrusting  trustees  with  muniments 

of  title        .  .  .  .  .  .    393 

rights  of  stockbrokers,  when  chargeable  with  notice  of  trust         396 
stocks  held  by  a  bare  trustee,  when  not  subject  to  creditor's  lien    387 
liability  of  partners,  upon  the  use  of  trust  funds  .  72,  73 

pledgee,  as  a  trustee  for  the  pledgor  of  the  collateral  property      117 
UNCOLLECTIBLE  PAPER. 

pledgee's  duty  as  to,  upon  failure  to  collect    .  .  .          125 

and  where  part  interest  in  note  is  pledged,  proving  uncollectible    147 
USAGES  ON  STOCK  AND  OTHER  EXCHANGES. 

requirements  of  a  valid  usage         .....    484 

usage  of  stockholders  selling  the  collateral  stocks  of  their  cus- 
tomers, without  notice        .....          485 

and  of  a  like  usage  amoug  brokers  and  commission  merchants 

advancing  money  on  shipments  ....    486 

the  usage  as  to  notice  of  sale  of  collateral  stocks  in  New  York      486 
sale  of  stocks  by  brokers,  under  contract  ....     487 

usage  as  to  notice  of  sale  and  closing  of  deals  on  boards  of  trade    488 
stockbroker's  usage,  dealing  with  his  customer's  collateral  stocks  481) 
broker's  usage  not  to  retain  the  identical  certificates  of  stock  or 

warehouse  receipts  .....  490 

usage  as  to  collateral  funds,  charges,  and  interest,  as  against  his 

customer  ......        492,  493 

stockbroker's  usage  as  to  "  name  day  "  .  .  494,495 

USURY. 

as  applied  to  loans  of  money     ....  171,  172 

effect  upon  negotiable  collateral  securities,  where  the  loan  itself 

is  void  ...  .      173,174,177 

and  upon  quasi -negotiable  collateral,  as  certificates  of  stock  431 

claims  of  sub-pledgees,  upon  loans  void  for  usury  .         174,  431 

indorsement  of  negotiable  paper  as  collateral  securitv  for  loans 

void  for        .......          177 


646  INDEX. 

USURY— Continued.  PAGE 

substitution  of  new  notes  for  those  void  as  usurious        .  .178 

rule  as  to  enforcement  of  collateral  securities,  where  a  loan  on 

is  voidable  only       .  .  .  .  .  173,  177 

rule  as  to  usury  and  the  collection  of  collateral  securities  eu- 

forced  as  to  National  Banks  •  .  .  .          17G 

rights  of  parties  under  substitution  of  valid  contracts  .  178,  179 

or  of  a  revival  of  a  valid  debt,  where  the  new  notes  are  usurious   179 
rules  of  estoppel  in  pais,  as  applied  to  a  borrower  of  money 
upon  a  bond  and  mortgage,  with  a  certificate  of  ''no  de- 
fense, equities,   or  set-offs"  .  .  .      175,177,178 
usurious  loans,  as  the  subject  of  defenses  by  third  parties   177,  178 
limitation  of  recovery  of  the  pledgee  of  collateral  accommoda- 
tion, paper,  when  tainted  with           .           .  .  .56 
(See  INVALID  LOANS.) 
WAREHOUSE  RECEIPTS. 

transfer  of  warehouse  receipts,  by  indorsement  aud  delivery, 

where  negotiable  ...  .  .     SH.! 

rule  where  such  transfer  conveys  the  title  of  the  imlo»-ser  only  Soli 
warehouse  receipt,  transferable  with  or  without  indorsement  550.  5.17 
pledge  of,  without  notice  to  the  warehouseman  .  .  556.  558 

equitable  estoppel,  as  applied  in  favor  of  pledgees  of,  against 

owners  of  property  or  warehouse  receipts      .  .         559,  SCO 

and  as  against  warehousemen,  by  the  terms  of  the  receipts  is- 
sued, when  in  the  hands  of  pledgees  for  value          .         500,  501 
pledge  of,  where  notice  of   fraud  or  felony  is  chargeable  as 

against  the  pledgee         .....         561,  503 
pledges  of,  upon  delivery  of  receipt,  and  notice  of  the  transfer 
k       to  the  warehouseman      ....'..    563 
requirement  of  possession,  actual  or  symbolical     to  validate 

pledge 564,  56o 

use  of  receipts  issued  on  their  own  property  by  warehousemen, 

as  collateral  security      ......    505 

use  of  such  receipts,  as  controlled  by  statutory  provisions    566,  567 


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